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Circular sheds light on how Clarington put in play

Deal reached amid talks with other firm


Takeover target Clarington Corp. signed an exclusivity agreement with white knight Industrial Alliance group only days after holding informal talks with mutual fund giant CI Fund Management Inc.

The behind-the-scenes details of Industrial Alliance Insurance and Financial Services Inc.'s $210.9-million friendly offer for Clarington are revealed in the Quebec City-based company's Nov. 18 circular, which was released yesterday.

Industrial Alliance and CI have competing offers for Toronto-based Clarington, manager of about $4.1-billion in mutual funds.

On Oct. 6, Scotia Capital Inc. approached Clarington on behalf of Industrial Alliance. One week later, senior management of the two companies reached a confidentiality agreement, the circular said.

In an interview on Oct. 31, Bill Holland, CI's chief executive officer, said his Toronto-based fund company had had "very friendly" talks with Clarington during the week of Oct. 24 about acquiring the firm. He declined comment yesterday.

On Friday Oct. 28, Industrial Alliance entered into an exclusivity agreement with Clarington that valued the company at $13 a share. The deal guaranteed Industrial Alliance a 30-day period of exclusivity, the circular said.

That weekend, CI finalized its Clarington bid and on Monday, Oct. 31 made public its plan to buy the firm, also for $13 a share. The hostile offer's terms included substantial cuts in the fees paid by the fund company's unit holders. If CI's offer were successful, analysts expect CI mutual funds would absorb their Clarington counterparts and many of the company's 110 employees would lose their jobs.

On Nov. 3, Industrial Alliance offered Clarington $14.25 a share and the two companies later reached a support agreement that gave the Quebec firm the right to match any competing offer.

In addition, Industrial Alliance offered "certain modifications" to employment agreements of three Clarington executives: Terence Stone, chairman; Adrian Brouwers, president and CEO; and Salvatore Tino, chief financial officer.

Existing employment terms remain largely the same, but if they were to be terminated without cause, each executive would be entitled under the modified agreements to 36 months' salary, bonus and benefits with a maximum value of $1.5-million, the circular said.

On Nov. 7, Industrial Alliance's friendly bid was announced. The offer received the unanimous support of Clarington's board and management, owners of about 25 per cent of the company's shares.

CI fired back with a higher offer of $14.75 per Clarington share on Nov. 14. According to the Industrial Alliance circular, "no formal offer" has been made and the bid receives a brief one paragraph mention.

© 2007 The Globe and Mail. All rights reserved.

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