C.I. Fund Management Inc. has entered into an agreement to acquire Spectrum Investment Management Ltd, the mutual fund subsidiary of Sun Life Financial Services of Canada Inc., and the mutual fund subsidiary of Clarica Life Insurance Co.

In exchange, Sun Life Financial will receive about 74 million common shares of C.I., which will represent 30% of C.I. after the transaction is completed.

A 20% interest will be issued on closing, and the remainder will be in the form of non-voting preferred shares convertible into C.I. common shares. The conversion of the preferred shares will be subject to the approval of C.I. shareholders. Certain management shareholders have agreed to support the transaction and to vote their shares in favour of the conversion of the preferred shares.

Under the agreement, C.I. will acquire mutual fund and segregated fund businesses with $13.2 billion in assets under management. C.I. will also receive preferred access for its products to more than 4,000 Clarica agents and managers.

The transaction, which is subject to regulatory approval, also includes a standstill period under which Sun Life Financial will not increase its stake in C.I. beyond 34% for three years, subject to certain exceptions. Sun Life Financial will also enter into a shareholders’ agreement with certain management shareholders which, among other things, will provide Sun Life Financial with representation on C.I.’s board.

The transaction is expected to close in July, following the required notification to unitholders of the Spectrum and Clarica funds and regulatory approval of the Sun Life Financial and Clarica transaction, which is expected later this month.

On completion, C.I. will have over $39 billion in fee-earning assets, including approximately $34 billion in mutual and segregated funds.

As a result, C.I. will leap past rivals such as AGF, and Fidelity to become the fourth-largest fund company in Canada, as measured by long-term mutual fund assets.

“This deal increases C.I.’s mutual and segregated fund assets by over 60%, and ensures that C.I. will continue to be a leader in the Canadian investment fund industry,” said Bill Holland, C.I.’s president and CEO. “For unitholders in the funds, being part of a larger company will provide important benefits, including increased choice of products, improved service and the potential for a reduction in the management expense ratios of the funds.”