(Adds closing share prices, more analyst comment)
By Nicole Mordant and Svea Herbst-Bayliss
VANCOUVER/BOSTON Oct 23 Sun Life Financial
Inc. (SLF.TO) (SLF.N) will not hive off fund manager MFS
Investment Management, the Canadian insurer said on Monday,
after failing to find the right deal or price for its Boston-based unit.
Shares in Sun Life closed down 2.4 percent at C$44.74 on
the Toronto Stock Exchange after the news, which comes just
over a month after it said it had hired bankers to advise on
what it should do with MFS, the oldest U.S. fund company.
"We discussed the decision to continue to own MFS with
management and learned that the issue was one of both price and
finding the right strategic transaction, namely, taking back a
significant minority position in a larger wealth management
company," said analyst Mario Mendonca of Genuity Capital
Markets in a research note.
Sun Life's decision to keep MFS changes the calculus in the
$9.3 trillion U.S. mutual fund industry where MFS had been one
of two Boston-based firms up for sale, analysts said.
They had expected to see greater interest in MFS, where profits have been rising, and possibly a price of at least $4
billion. That's above the likely price for Putnam Investments,
which still struggles with redemptions.
Analysts said that MFS management's stake in the firm plus
its wish not to be absorbed by another fund manager might have
made it difficult to find a buyer. MFS management has options
to own a 22 percent stake.
With MFS effectively off the table, shares in Marsh &
McLennan (MMC.N), Putnam's parent, closed up 2.8 percent or 78
cents at $29.06 in New York.
"If two houses on a block are for sale and one goes off the
market, the other is worth more," said Donald Light, insurance
analyst with Celent LLC.
While MFS's assets under management have been climbing, the
company has struggled to attract more investors to its mutual
funds, an ironic turn as it pioneered the first U.S. mutual
fund in 1924.
But, pre-releasing results from MFS, Sun Life said net
income from the fund manager grew 37 percent to $52 million in
the third quarter, while assets under management were worth
$175 billion. That was up about 4 percent from the $168 billion
in managed assets as of June 30.
Sun Life, Canada's second biggest insurer, will report
group third-quarter results on Thursday.
For analysts, the numbers show that MFS has likely turned
the corner, more than two years after settling a market timing
scandal at a handful of its funds. However, some analysts
remained disappointed by the absence of a deal.
"In the final analysis, MFS still lacks scale for
investment in technology, marketing and overhead relative to
larger competitors," said RBC Capital Markets analyst James
Keating in a note.
For individual fund investors the news that MFS will stay
with Sun Life may not have much of an impact. "I am fairly
neutral on this deal falling through," said Morningstar analyst
Laura Lutton, adding that MFS still has work to do on repairing
its growth funds after some management changes.
Donald A. Stewart, Sun Life's chief executive, said there
had been a "high degree of interest in partnering with MFS".
There had been widespread speculation that U.S.-based
Mellon Financial Corp. MEL.N and Wachovia Corp. WB.N were
finalists to buy MFS. But Sun Life spokesman Michel Leduc said
on Monday the company "never planned on selling MFS," but had
looked at other options, including a type of partnership.
That harks back to a transaction Sun Life did in 2002 when
it combined its mutual fund assets with those of then
recently-acquired Clarica, and sold them on to CI Fund
Management for a 30 percent stake in the fund manager.
(Additional reporting by Blaise Robinson in Toronto and Ed
Leefeldt in New York)