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CI back in Clarington hunt, sweetens offer

Industrial Alliance has right to match bid; analysts don't rule out further action

MUTUAL FUNDS REPORTER

CI Fund Management Inc. has returned to the fight for Clarington Corp., besting an Industrial Alliance group offer for the mutual fund firm by about $8-million.

Toronto-based CI, Canada's third-largest fund company, made a hostile takeover bid of $219.8-million for Clarington late yesterday.

The offer of $14.75 a share is CI's second try at buying Clarington, also of Toronto. On Oct. 31, CI made a hostile offer of $13 a share for the company, which manages about $4.1-billion in retail mutual funds.

But CI's initial bid was quashed Nov. 7 when Clarington directors and senior managers endorsed a bid of $14.25 a share from Industrial Alliance Insurance and Financial Services Inc. of Quebec City.

If its offer is successful, CI must pay a $7-million breakup fee.

The competing cash offers don't include the assumption of about $60-million in Clarington debt.

CI's revised offer, like its initial bid, includes a pledge to cut annual management fees paid by Clarington's retail unitholders, saving them an estimated $81-million in fees over the next seven years.

"We believe that we have made now a vastly superior bid," said Bill Holland, CI's chief executive officer. "Matching it on the stock price is not even close. We have $5.50 in unitholder benefits [a share] today. I don't see how that can be ignored."

Clarington is studying the offer and declined to comment.

Industrial Alliance, manager and administrator of about $32.4-billion in assets, declined to comment, and is expected to issue a statement today. The Quebec insurance and financial service company's $212.3-million offer for Clarington does not specifically address fund fees, but management has said it will keep costs competitive with the industry.

Analysts did not rule out further bids for Clarington.

Industrial Alliance "has negotiated the right to match any offer," said John Aiken, an analyst at National Bank Financial Inc. "The wild card in this is: Can Clarington's board accept [Industrial Alliance's] offer even though it may not have the same benefits to unitholders?"

If CI's hostile bid is successful, the fund giant is expected to merge Clarington's retail funds within its own offering and let go most of the boutique fund company's 110 employees. In contrast, Industrial Alliance wants to use Clarington's distribution capabilities to build its national presence, and has no plans to trim Clarington's payroll.

© 2007 The Globe and Mail. All rights reserved.

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