Montreal, Quebec, Canada (4E) – In a move worth USD4 billion, Manulife Financial Corp is set to purchase Standard Life’s Canadian operations. The purchase builds both insurance firms wealth businesses as well as increase the exposure of Manulife in Canada, specifically in Quebec.
Manulife, the largest insurer in Canada in terms of market capitalization, was approached by British firm Standard Life several months ago. Standard Life was looking to divest its interests in Canada, which has 2,000 employees with 1.4 million customers.
According to Manulife CEO Donald Guloien, “Part of our strategy is to improve our presence in Quebec and increase our penetration of the market in Quebec. Unfortunately, Manulife has historically been unrepresented in Quebec, both in terms of jobs and our penetration of the market.”
The acquisition would be funded in part from the net proceeds of the issue of USD2.1 billion of subscription receipts through a USD1.6 billion publicly bought deal. There will also be a private placement of USD500 million at the the Caisse de depot et placement du Quebec. Should any balance remain, funding would be sourced from internal funding with an option via future debt as well as preferred share issuances.
Guloien added, “Several months ago, Standard Life decided to explore the sale of its Canadian operations through a competitive process. We are delighted to be named the successful bidder. One of the key reasons we were interested in this company is its people in Quebec. We want to increase our presence in the province and use the very talented employee base to grow and expand our business in Quebec, throughout Canada and indeed the world.”
He did reassure Manulife investors that the financing requirement for the purchase would ‘in no way inhibit’ the British firm’s ability to pay dividends.
The deal would require approval from both regulatory and Competition Bureau. He did not elaborate on what businesses of Standard Life Manulife would retain, but there is an expectation of some job losses in the integration.
Previously, Manulife and Standard Life had worked together in the distribution of investment producrs throughout the world. This was based on the relationship between Standard Life Investments and John Hancock.
Part of the deal includes a ‘global collaboration agreement’ that would have Manulife distribute Standard Life investment funds through its network in Canada, United States and Asia. It is projected that within three years, the volume of assets managed by Manulife using Standard Life networks would triple in amount.
For its part Standard Life CEO David Nish did not elaborate on what the company would be doing with the remaining cash after its payment of dividends to its shareholders. The dividend would be allowed to declare the amount as either income or capital. The projected payout would be GBP0.73 per share for a total of GBP1.75 billion.
Early morning trading, upon the announcement of the deal, at Toronto saw Manulife’s shares close at 0.8%0 while Standard Life share price increased by 10% at the opening of the FTSE100. The deal is expected to be completed within three years.