|
 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.
IMPROVED RISK-PROFILE
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 PRU.L and Legal & General
LGEN.L for their purer exposure to insurance.
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," Flanagan said.
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.
SHARES JUMP
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 .GSPTSE, Standard Life stock jumped by 10 percent at the
open in a flat FTSE 100 .FTSE.
[to top of second column] |
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 organization 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 realize 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 years.
"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.
(With additional reporting by Alastair Sharp; Editing by Leslie
Adler, Gunna Dickson and Cynthia Osterman)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed. |
