Industrial Alliance buys back shares as Clarington offer expires

Since extending its purchase offer in December, Industrial Alliance Insurance and Financial Services (IA) has acquired 444,250 more outstanding common shares of Clarington Corporation. IA now owns more than 14.5 million shares, which represents a little more than 98% of Clarington’s issued and outstanding shares.

The Industrial Alliance offer to purchase outstanding Clarington shares expired on Tuesday night. The company had acquired almost 92% of the outstanding shares back in December when it decided to extend the offer until January 10.

As part of the deal — estimated to be worth around $220 million — the company said it would pay $15 for each outstanding Clarington share and make a number of Industrial Alliance shares, equal to 25% of the total purchase price, available for trade.

Under the agreement, the company will issue 0.5325 of an IA share for each Clarington share. Demand so far has exceeded the limit set out in the agreement. As it stands, shareholders will likely receive a little less than 60% of the shares they requested. The shares available as part the deal will be divided evenly on a “proration” or proportionate basis relative to existing Clarington share ownership, with the balance paid out to shareholders in cash.

The company says it intends to use a normal course issuer bid (NCIB) to repurchase all of its common shares issued as part of this exchange in order to minimize any dilution that could affect existing IA shareholders.

In an NCIB transaction, the company or issuer buys back its own shares from the market to cancel them when they believe shares are undervalued by the market. More than 100,000 Industrial Alliance shares trade on the TSX each day. Existing shareholders are under no obligation to sell. The number of shares a company can repurchase is restricted by a 2% per month limitation imposed by the exchange.

“Each year the company asks the Toronto Stock Exchange for permission to buy back a certain number of shares during the year. It’s usually good for a one year period,” says IA vice president of investor relations, Jacques Carrière. “Industrial Alliance has been renewing its normal course issuer bid for four years now and we’ve never bought back shares. Now we’re saying the normal course issuer bid is there, we are allowed and entitled to buy back shares, and we intend to exercise our rights there.”

The Clarington acquisition is part of the company’s plan to make in-roads in the investment management business and expand its presence in the English mutual fund market. Its offer was quickly accepted in favour of a hostile takeover attempt by fund manager CI Investments.

CI made an unsolicited offer of $13 per share for the company in late October. IA countered with a friendly offer of $14.25 per share, which CI later topped with a $14.75 bid. The company eventually bowed out when IA upped the ante to $15.

In a conference call on Tuesday, CI’s chief operating officer, Stephen MacPhail said the company abandoned its bid because “we felt the price was too high for the risk-return we were going to face, even after cutting expenses out of that business.”

Reports suggest that CI’s plans to assimilate the company are part of what made the IA’s white knight offer so attractive to Clarington shareholders. Rather than absorbing Clarington, IA says it plans to keep the company “substantially intact.”

“We’ve made an important stride in our growth strategy in the investment funds market by buying Clarington,” says Carrière. “It will position our company as one of the top 20 players in the Canadian mutual fund management market. We’re quite happy with that. We think that the Industrial Alliance team plus the Clarington team will form a powerhouse, with activities all across the country.”

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com