The Co-operators Group Ltd. and Montreal-based institutional investment management firm Addenda Capital Inc. today announced that Addenda will amalgamate with a subsidiary of The Co-operators.

Soon after the completion of the amalgamation, the business of Co-perators Investment Counselling Limited, a wholly owned subsidiary of The Co- operators, will be combined with that of Addenda.

With assets under management of approximately $29 billion, Addenda is a leader in the institutional fixed income market.

Based in Guelph, Ontario, The Co-operators is the leading Canadian-owned multi-product insurance company.

The new entity, which will operate under the Addenda brand, will have offices in Montreal, Toronto, Guelph and Regina, will manage approximately $40 billion in assets and have significant potential for future growth.

The combined entity will be known as Addenda Capital Inc. Addenda will be headed by Michael White who will become president and CEO. Most of Addenda’s management will continue to serve in their current capacity within the new entity. Myriam Larcher will remain chief operating officer and CFO while Yvan Fontaine will act as senior vp and co-chief investment officer. Benoît Durocher will become executive vp, client service and marketing. Joe DiMassimo, senior vp sales and service will continue to work out of Addenda’s current Toronto office.

The senior management team has agreed to invest in the new entity given the strong similarities between the respective corporate cultures of Addenda and The Co- operators. Jim MacDonald, currently chief investment officer of Co-operators Investment Counselling, will become senior vp and co-chief investment officer of the new company.

“This transaction creates a national investment manager of significant scale and offers existing clients of Addenda and Co-operators Investment Counselling Limited excellent choice in diversification of asset classes, management styles and capabilities,” said Kathy Bardswick, president and CEO of The Co-operators, in a relase. “The two companies complement each other well, and this acquisition supports The Co-operators strategic goal of significantly growing our presence in Quebec.”

“We are very excited about this transaction which will allow Addenda to team up with an insurance industry leader and its investment management subsidiary. This combination will further enhance Addenda’s ability to meet our clients’ needs in terms of specialty products such as liability driven investing” said Carmand Normand, executive chairman of the Board of Addenda.

Under the terms of the agreement, shareholders of Addenda will receive $26.50 in cash for each Addenda share, representing a premium of 23.8% to the closing price of $21.40 for Addenda common shares on Friday February 22, and a premium of 25.7% to the 20-day volume weighted average price of $21.09 for Addenda common shares.

The transaction, which values Addenda’s equity at approximately $306.5 million, is subject to customary conditions precedent including approval of the amalgamation by shareholders of Addenda and obtaining any required regulatory approvals.

Certain senior management shareholders of Addenda will exchange, immediately prior to the amalgamation, in the aggregate approximately 50% of their common shares of Addenda for shares of merged company. Solidarity Fund QFL, a current shareholder of Addenda, will exchange, immediately prior to the amalgamation, 100% of its common shares of Addenda for shares of the merged company and will subscribe to additional common shares of the merged company. Certain other employees of Addenda will be offered an opportunity to exchange, immediately prior to amalgamation, part of their common shares of Addenda for shares of the merged company.

The senior management shareholders and the Solidarity Fund QFL, representing approximately 25% of the issued and outstanding common shares of Addenda, have each entered into a voting support agreement pursuant to which they have agreed, subject to certain conditions, to vote their common shares in favour of the amalgamation.

The proposed amalgamation has been approved unanimously by the board of directors of Addenda (with interested directors abstaining) following the report and favourable, unanimous recommendation of a transaction committee comprised of three independent directors.

Addenda has agreed not to solicit competing acquisition proposals for Addenda but has retained the ability to consider a competing acquisition proposal not solicited by it which the Addenda board believes may lead to a superior proposal and to terminate the agreement in the event of a superior proposal, subject to The Co-operators right to match and payment of a break-up fee of $8 million. The agreement also allows Addenda to continue to declare and pay quarterly dividends to shareholders in the ordinary course of business.

@page_break@A meeting of shareholders to consider the amalgamation is anticipated to take place in April. To be implemented, the amalgamation will require approval by two-thirds of the votes cast by holders of common shares. The amalgamation will also require approval by a simple majority of the votes cast by public shareholders.