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Agencies Eye Manulife Bid For Canada Life

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NU Online News Service, Dec. 11, 11:38 a.m. – The rating agencies are giving efforts by Manulife Financial Corp., Toronto, to acquire Canada Life Financial Corp., through an unsolicited takeover mixed reviews.

Manulife, the second largest Canadian life insurer, has offered shareholders of Canada Life, the fourth largest, a combination of cash and stock worth about $4.1 billion in U.S. currency.

Manulife controls the equivalent of $89 billion in assets in U.S. currency, and Canada Life controls $42 billion. Manulife once had more assets than any other Canadian life insurer, but Sun Life Financial Services of Canada Inc., Toronto, recently vaulted over it by acquiring Clarica Life Insurance Company, Waterloo, Ontario. Completing the Canada Life deal should help Manulife regain its position as the biggest Canadian life insurer, Manulife says.

The Canada Life deal would also increase Manulife’s market share in Canada and the rest of North America, and help it expand in the United Kingdom, where Canada Life has a big share of the group life market.

In the 1990s, the rating agencies might have emphasized the value the Canada Life deal could bring to Manulife, but, in these more conservative times, some agencies are emphasizing the risks Manulife faces.

Fitch Ratings Inc., New York, points out that other bidders could emerge, and A.M. Best Company, New York, warns that Manulife could have a tough time learning to do business in countries where it does not already operate.

“Moreover,” the Best analysts write, “as this offer is an unsolicited one, its structure may complicate integration activities given the limited due diligence performed on Canada Life.”

Standard & Poor’s, New York, also warns about the dangers involved with making an unsolicited bid, one being the “significant distraction that this may pose for the company’s senior management.”

But analysts at Moody’s Investors Service, New York, are praising the deal.

Although it increases Manulife’s exposure to the highly competitive Canadian market, “the in-market component of this transaction provides excellent opportunities for expense savings and scale related benefits,” the Moody’s analysts write.

Manulife should be able to use its own cash, rather than borrowing, to cover the cash portion of the acquisition costs, the Moody’s analysts note.

Meanwhile, the biggest challenge Manulife may face is skepticism at Canada Life.

Manulife says the price it is offering is about 30% higher than the price Canada Life stock has been fetching in recent weeks on the Toronto Stock Exchange.

“Our offer gives Canada Life shareholders a compelling choice,” Manulife President Dominic D’Alessandro says in a statement about the bid. “They can realize a significant cash premium on their investment or continue as Manulife shareholders participating in the future growth of a major market leader.

But Canada Life Chairman David Nield has questioned the proposed price in the Manulife proposal.

“In my view, this proposal does not reflect the value of our company,” Nield says. “We and our professional advisors are reviewing our strategic options.”

Both Manulife and Canada Life demutualized in 1999, when the Canadian government eased limits on life and health insurance company demutualizations. The Canadian government tried to preserve competition by imposing temporary limits on consolidation that expired Dec. 31, 2001, according to the Department of Canada Finance.

Some experts have argued that the Manulife bid will put Canada Life “in play,” but The National Post, a Canadian newspaper, suggested last month that Canada Life had already put itself in play by hiring David Williamson, former chief financial officer of Clarica Life Insurance Company, Waterloo, Ontario, to be its senior vice president for strategic development. Williamson was credited with helping prepare Clarica for the Sun Life acquisition, and he has also helped other companies arrange other large deals.