Lincoln to sell UK unit

By Juan Lagorio

NEW YORK (Reuters) - Lincoln Financial Group (LNC.N) said it would take federal bailout money and sell stock and debt to raise $2 billion (1.2 billion pounds) to shore up its insurance unit and repay older debt, sending its shares down 8 percent.

The insurer also said on Monday that it would sell its UK subsidiary to Sun Life Financial (SLF.TO) of Canada for 195 million pounds.

U.S. life insurers have been weakened by the global financial crisis, hurt by investment losses as well as higher costs on investment-linked retirement products that guarantee returns.

In May the government declared six big insurers, including Lincoln, eligible for bailout funds under the Troubled Asset Relief Program. Lincoln said it would take $950 million by selling preferred stock to the Treasury. Hartford Financial Services Group (HIG.N) is taking up to $3.4 billion, while the other four companies have declined to accept TARP funds.

Lincoln said it also plans to sell $600 million of common stock and up to $500 million of senior debt.

It may boost the stock offering to $690 million if there is sufficient demand. The sale could dilute the investment of current shareholders by 13 percent.

"They are trying to shore up what they understand ... and taking advantage of what has been made available to provide them a better position to weather any storm," said Michael Nix, portfolio manager of Greenwood Capital Associates.

"It puts them at a competitive disadvantage to those that do not need government assistance -- just from the standpoint of not having the government overseeing them," he added.

Lincoln shares fell $1.42 to $16.33 in morning trade on the New York Stock Exchange.

Sun Life shares were down 57 Canadian cents to C$30.83.

Lincoln said half of the new funds would go to fund Lincoln National Life Insurance. The remainder will go for general corporate purposes, including the repayment of short-term debt and investment in the company's core businesses.

Lincoln estimated proceeds of $280 million to $300 million, net of tax, from the sale of its UK unit. The deal is expected to close on or around September 30, it said.

Lincoln has been working for months to head off a cash drain, slashing its dividend 95 percent in February and more recently reaching a reinsurance deal with Goldman Sachs that improves its capital position by about $240 million.

The insurer has also paid down debt, reducing financial leverage.

Lincoln shares are down 13 percent this year, while the Dow Jones U.S. life insurance index .DJUSIL has fallen 12 percent.

(Reporting by Juan Lagorio, editing by Lisa Von Ahn and John Wallace)