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Manulife to Buy John Hancock

No. 3 insurer in Canada plans $10.8-billion stock swap with the U.S. life insurer to expand its operations in America.

September 29, 2003|From Reuters

Manulife Financial Corp., Canada's third-largest insurer, said Sunday that it agreed to buy U.S. life insurer John Hancock Financial Services Inc. for about $10.8 billion, expanding Manulife's operations in the United States.

The stock swap deal, the largest corporate transaction in the U.S. so far this year, would vault Manulife back into the top spot among Canadian insurers and make it the second-largest insurer in North America and No. 5 in the world.

Under the deal, John Hancock shareholders would receive 1.1853 Manulife common shares for each John Hancock share, pegging them at $37.60 or an 18.5% premium on Friday's share price.

The Canadian firm would get John Hancock's Nova Scotia-based Maritime Life unit, giving its business in Eastern Canada a boost.

The combined entity would earn cost savings of $255 million after three years and would raise Manulife's net income by 6 cents a share, excluding one-time charges, for the last three quarters of 2004.

The deal was expected to boost profits in 2003 by 23 cents a share, Manulife said. The combined company would have net income of $1.4 billion and $246 billion in assets under management, based on 2002 figures.

Analysts have been expecting Manulife to earn $3.59 a share in 2004 and $3.80 a share in 2005, according to Reuters Research.

Manulife spokeswoman Donna Morrison Lindell said Sunday that it was too early to talk about figures related to job losses.

"They will be looking at them as part of the integration and I hope that the majority of jobs will be taken care of through normal attrition and through normal business growth," Lindell said.

The deal had been rumored for some time and resulted in heavy trading in the two companies' shares Friday.

Manulife Chief Executive Dominic D'Alessandro would be president and chief executive of the combined entity, which is valued at $25.6 billion. Hancock CEO David D'Alessandro would become chief operating officer and president of Manulife.

The deal was expected to be completed by the second quarter of 2004.

Dominic D'Alessandro, who is not related to David D'Alessandro, has said in the past that Manulife was looking for acquisition opportunities in the United States.

Once Canada's No. 1 insurer, Manulife had been forced to the sidelines over the last year as the Canadian insurance sector saw a heavy bout of consolidation.

First, Sun Life Financial Inc. snapped up Clarica Life Insurance Co., considered a plum among smaller Canadian insurers. Then Manulife attempted to buy Canada Life but lost out to rival Great-West Lifeco Inc.

Manulife also had reportedly held merger talks with Canadian Imperial Bank of Commerce last year, but a potential deal was said to be blocked by the government.

Manulife's deal would bring the curtains down on an institution founded 141 years ago by Albert Murdock and some Boston businessmen.

John Hancock, recently rumored to be for sale, was demutualized and started to publicly trade in 2000.

As part of a recent restructuring, the company -- reported this year to be in separate talks with FleetBoston Financial Corp. and Prudential Financial Inc. -- is selling its group life insurance business to MetLife Inc.

John Hancock also has sold some of its home office real estate to Beacon Capital Partners.

"Not only is consolidation in our industry inevitable, but for companies of our size to compete and grow in the future, it is necessary," Hancock's D'Alessandro said in a statement.

Shares of Boston-based John Hancock jumped $2.25, or 7%, to $34.30 Friday on the New York Stock Exchange amid speculation of a pending sale.

Shares of Manulife were down $1.13 in Canadian dollars to close at $30.20.

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