Clarington takeover bid heats up

The fight for control of Clarington is heating up, with CI Financial’s president and CEO calling the dismissal of his company’s bid “ridiculous.”

“It wasn’t until we received a copy on Wednesday of the support agreement between Clarington and Industrial Alliance that we were able to discover the conditions under which they would consider another bid to be real,” said Stephen A. MacPhail, president and COO of CI.

The takeover battle started on October 31, when CI offered $13 per share, or $254 million, in cash and stock for Clarington. On November 7, Industrial Alliance made a rival bid of $14.25 per share, or $273 million. Clarington’s board accepted the IA bid and CI immediately withdrew its original offer.

On November 14, CI returned with a new offer of $14.75 a share, or $285 million. Both the CI offer and the Industrial Alliance bid consist of cash and/or stock.

Industrial Alliance announced today that it plans to mail its take-over bid circular to Clarington shareholders no later than November 21, 2005.

CI has also repeatedly said it planned to reduce the MER on several of Clarington’s funds, bringing them inline with its own fund offerings and thereby making their bid more palatable to Clarington fund unit-holders.

Industrial Alliance has said it also plans to make reductions in the cost structure of Clarington funds.

“IA is committed to providing competitively-priced products,” said Normand Pépin, executive vice-president of Industrial Alliance. “In fact, our segregated fund line-up has expense ratios on average 40 to 50 basis points lower than comparable segregated funds offered by CI and its affiliates.”

While CI has announced it would merge many of Clarington’s funds into its own products with similar investment strategies, Industrial Alliance says it plans to maintain the newly acquired funds as separate products.

“Investors selected Clarington funds for a reason,” said David Scandiffio, president of Industrial Alliance Fund Management. “By merging Clarington funds into bigger, less nimble funds from a larger complex, CI would fundamentally be changing the nature of the offering, including distribution features, tax efficiency, and the potential for performance.”

The current deal between Clarington and Industrial Alliance includes a $7 million break clause, which MacPhail says amount to a gift of 50 cents per share to the buyer, from the shareholders.

“What we are seeing is a direct transfer of wealth from Clarington’s shareholders to Industrial Alliance of almost $0.50 per share that otherwise would be included in a competing bid,” MacPhail said. “If I were an investor who purchased Clarington shares since CI announced its bid, I would be shocked to hear Clarington and Industrial Alliance were acting like CI’s bid was non-existent.”

Another potential twist to this story arrived late Friday afternoon, when Industrial Alliance announced it was taking an additional $65 million provision to cover losses with respect to its investment in Norshield (see Norshield receiver finds little money), bringing its total provision to $78 million. However, the firm said the provision does not “alter in any way” IA’s financial stability.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com