Manulife Makes Unsolicited Bid To Acquire Canada Life

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Manulife Financial Corp. has taken a step toward the long-anticipated consolidation of the Canadian life insurance market by making an unsolicited offer to acquire Canada Life Financial Corp. for a combination of cash and stock worth about $4.1 billion in U.S. currency.

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.

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,” he says. “We and our professional advisors are reviewing our strategic options.”

Manulife and Canada Life, which are both based in Toronto, and several other large Canadian life insurers converted to shareholder-owned stock companies from policyholder-owned mutuals in 1999, when the Canadian government eased limits on life company demutualizations.

The Canadian government tried to preserve competition by imposing temporary limits on acquisitions involving the newly demutualized companies. The limits expired Dec. 31, 2001.

Manulife, the second largest Canadian life insurer, controls $89 billion in assets in U.S. currency, and Canada Life, the fourth largest Canadian life insurer, 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 with the acquisition of 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 Manulifes 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, and in other European countries.

The effects in the United States may be more modest, partly because Manulife is so much bigger here than Canada Life. Manulife generates about $4 billion in revenue in the United States each year, more than three times as much as Canada Life, according to the companies annual reports.

But Canada Life sold its first U.S. policy in 1899. It now has a U.S. home office in Atlanta, along with 20 regional offices and 30 group offices. The distribution network includes both salaried group sales representatives and independent agents and brokers, and the products distributed include individual fixed and variable annuities, group annuities, individual and group life insurance, group accidental death, disability, dental and critical illness insurance.

Manulife sells annuities, group pensions and insurance in the United States through a variety of channels.

When it comes to distribution strategies at Manulife and Canada Life, “I guess there are more similarities than differences,” says Eric Marcus, president of The Marcus Group, Sudbury, Mass., an insurance brokerage that has done business with both Manulife and Canada Life and currently distributes Canada Life products.

But both companies, like many other Canadian life insurers, have strong products, especially in the universal life category, Marcus says.

A few years ago, Marcus says he decided against selling products from both Manulife and Canada Life, after asking himself, “How many Canadian companies do you need?”

Today, he says, the question is less relevant, because consolidation is rapidly reducing the number of large Canadian life insurers.

The rating agencies are giving the effort by Manulife to acquire Canada Life mixed reviews.

Fitch Ratings Inc., New York, points out that other bidders could emerge.

Some Canadian newspapers suggested last month that Canada Life actively put itself in play by hiring David Williamson, an executive who had helped Clarica prepare itself for the Sun Life Financial acquisition, to be its vice president for strategic development.

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

Analysts at Moodys Investors Service, New York, are praising the deal.

Although it increases Manulifes 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 Moodys analysts write.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 16, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.