In a surprise move, money manager, Jarislowsky Fraser Limited, says that it strongly objects to the break-up fee of $310 million agreed to by Clarica in connection with Sun Life Financial’s recent takeover bid, and it urges shareholders to vote against the deal.

The firm, which manages accounts holding more than 4 million shares of Clarica, says that this fee amounts to 4.5% of the current value of the shares and is excessively high as compared to: the current market value of the bid; the out-of-pocket expenses likely to be incurred by Sun Life; and the estimated value of the total yearly cost synergies that the companies themselves are estimating (i.e. $269 million per year by 2004). “Sun Life’s argument that they would not have bid without this fee is irrelevant as there may be other parties willing to bid for this franchise,” it says.

“The break fee is in effect the same as a ‘poison pill’ as it deters other potential bidders by making any acquisition of Clarica more expensive and reduces the value received by shareholders. This also has the effect of entrenching current Clarica management who apparently have been offered significant roles in the ongoing Canadian operation,” it argues. “These promises, along with an apparent lack of a comprehensive auction for this company, are not consistent with the maximization of shareholder value for the current shareholders of Clarica.”

The firm says that, given the current structure of this bid, it will be advising its clients and stakeholders to vote against this proposed acquisition. It also says that it strongly urges all Canadian equity investors to encourage the various provincial securities commissions to act and set aside any bid where significant break fees are involved.

“The current form of break fees have reached excessive limits in terms of dollar value and are also written to deter any expression of interest by alternative bidders. This clearly stifles the free market operation of the capital markets as shareholders are not able to have a clear picture of their potential alternatives. Shareholders should not be put in a position where they must vote down a bid before evaluating alternative bids without a financial penalty.”