* Companies to expand wealth and asset management venture
* Standard Life to pay out more than half the cash as
* Boosts Manulife's Quebec presence, retirement products
* Analysts welcome reduction in volatility for Standard Life
* Manulife shares close 0.8 pct higher, Standard Life jumps
(Adds shares, analyst comment, detail, bullet points)
By Euan Rocha, Jeffrey Hodgson and Simon Jessop
TORONTO/LONDON, Sept 3 Manulife Financial Corp
and Britain's Standard Life have agreed a
near-$4 billion deal for the Canadian operations of the British
insurer as part of a broader global tie-up.
The C$4 billion cash deal will significantly expand
Manulife's presence in Quebec and make Standard Life's earnings
less volatile while helping it to continue to grow its asset
management arm, analysts said.
Manulife said the transaction would boost earnings after the
first year and more than double its presence in the largely
French-speaking Canadian province, while Standard Life said it
will return more than half of the sale proceeds to shareholders.
The companies will also expand an existing wealth and asset
management partnership, with Manulife distributing Standard Life
funds in Canada, the United States and Asia, while Standard Life
reciprocates in the British retail market.
"I think this is a good deal for Manulife," Morningstar
analyst Vincent Lui said, noting that Standard Life is a pioneer
in areas such as liability-driven investments and that Manulife
can benefit from the know-how gained via the acquisition.
Lui also said that the access and growth opportunities in
Quebec are a huge bonus.
"Quebec is a market that has been to an extent ignored by a
lot of the large Canadian insurers, so this deal gives Manulife
a quick strategic entry point into that market," he said.
Analysts were even more positive on the benefits for
Standard Life, describing the deal as "excellent" and "fabulous"
in notes to clients.
Panmure Gordon's Barrie Cornes hailed what would be an
improved risk profile of the company, saying: "Given the
Canadian business includes a capital-intensive book of legacy
spread/risk business, the disposal will substantially reduce
Standard Life's overall capital requirements, volatility and
exposure to market risk."
Shore Capital analyst Eamonn Flanagan said the disposal
removes significant exposure to spread-and-guarantee risk but
kept a "hold" rating on the stock, preferring Prudential
and Legal & General for their purer exposure to
The contribution of Standard Life Investments', the
insurer's fund arm, to Standard Life's fee-based revenue surged
to 40 percent in the first half of the year from 29 percent five
years ago, a Reuters analysis of half-yearly results showed.
"However, full marks to Standard Life for this move,"
Standard Life currently trades on a forward price-earnings
ratio of 14.26, making it the most expensive of the leading UK
insurers, though its return on equity is below average, Thomson
Reuters data showed.
The money Standard Life plans to return to shareholders will
be paid through a dividend that allows certain investors to
report it as either income or capital, it said. A total payout
of 1.75 billion pounds would equate to 73 pence per share.
Chief Executive David Nish declined to say what the company
would do with the rest of the cash, but the company said it
intends to carry out a share consolidation after the payout.
Early trading on Thursday indicated that investors applauded
the deal. While shares in Manulife, already Canada's largest
insurer, closed 0.8 percent higher overnight in a Toronto index
up 0.3 percent, Standard Life stock jumped by 10
percent at the open in a flat FTSE 100.
That put the stock on course for its biggest daily gain in
more than five years, in volume more than half its 90-day daily
average after only 30 minutes of trade. By 0926 GMT, the shares
were still up by nearly 8 percent at 416.7 pence.
Manulife CEO Donald Guloien predicted that it would take one
to two years to integrate the Standard Life assets.
"We think it is a great match with our organisation for a
whole variety of reasons ... They've developed some very
creative products that are a terrific complement to ours," he
told reporters on a conference call.
Manulife said the deal significantly builds its capacity to
offer services including group benefits and retirement, several
areas of asset management, plus liability-driven investing.
Standard Life's Nish, meanwhile, said that his company would
now be able to realise the full value of a business that has
been turned around in recent years and expand collaboration on
distribution. This could triple the $6 billion of assets under
management already gained through a similar distribution deal
with Manulife's John Hancock business, Nish said.
MANULIFE DIVIDEND SECURE
After the first year, Manulife said it expects the
transaction, excluding integration costs, to add about 3
Canadian cents a share in value over each of the following three
"It will also increase our earnings capacity beyond our 2016
core earnings objective of C$4 billion," Guloien said. "This
transaction, and the financing, maintain our strong capital
position and in no way inhibit our ability to pay dividends. In
fact, it will enhance our ability to increase dividends."
The insurer said the purchase will be partly funded by the
sale of about C$2.1 billion of subscription receipts by way of a
C$1.6 billion public-bought deal and a C$500 million placement
with the Caisse de dépôt et placement du Québec pension fund.
The balance will be paid for from internal funds and possible
future sale of debt and equity.
(1 US dollar = 1.0885 Canadian dollar)
(1 British pound = 1.7941 Canadian dollar)
(1 US dollar = 0.6078 British pound)
(With additional reporting by Alastair Sharp and Nishant Kumar;
Graphic by Vikram Subhedar; Editing by Cynthia Osterman and