Manulife bid for ING assets seen as challenging

TORONTO, July 31 Tue Jul 31, 2012 1:38pm EDT

TORONTO, July 31 (Reuters) - Manulife Financial Corp would have to issue shares at depressed prices to acquire assets being auctioned off by Dutch lender ING Groep , CIBC World Markets said on Tuesday, complicating a bid by the struggling Canadian insurer.

Manulife, the leading life insurer in Canada, was one of a handful of companies to have made it to a final round of bids for all or part of ING's Asian insurance and wealth management assets, sources told Reuters earlier this month.

ING is selling the Asian businesses, whose value is pegged at around $7 billion in total, to help repay a bailout from the Dutch government during the 2008 financial crisis. Manulife, which owns John Hancock in the United States, already has a presence in about a dozen Asian countries.

For Manulife, buying all or part of the operation would have been easier five years ago, when its share price was above C$40, its capital levels strong and its market capitalization sitting above C$70 billion.

The timing is now more difficult for Manulife, with its capital levels under pressure and its shares near their lowest since 2009.

"Although the potential strategic advancement seems clear and would be positive, the financial implications of such a transaction remain an open question and will likely weigh on the shares until this process is completed," CIBC analyst Robert Sedran said in a note.

Manulife's results have suffered over the past three years because of weak stock markets and low bond yields, which force Canadian insurers to build up reserves to ensure they can fulfill future payout obligations. The company is expected to post a loss when it reports second-quarter results next week.

This has both put Manulife's shares on the defensive and also hurt its capital levels, meaning a cash buy could be a challenge.

With several bidders in the process likely pushing the price higher, Manulife would likely have to come to the market to finance at least a portion of the deal, Sedran added.

Manulife's shares were down 10 Canadian cents at C$10.60 on the Toronto Stock Exchange on Tuesday.

Last week, the stock touched C$10.18, matching a three-year low. Sedran calculates the current share price represents less than 0.9 times Manulife's book value. The shares traded as high as C$44.23 in 2007.

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