TORONTO • Manulife Financial Inc. is paying $4-billion to acquire the Canadian business of competitor Standard Life PLC.
The sale includes Standard Life’s long-term savings and retirement business, individual and group insurance, and investment management. Standard Life was the fifth-largest life insurer in Canada, with 2,000 employees, 1.4 million customers, and a strong presence in Quebec.
For Edinburgh-based Standard Life, the sale of the Canadian business represents a “major step” in a strategy designed to reduce exposure to spread/risk income associated with insurance, while focusing on fee-based investment management.
“Several months ago, Standard Life decided to explore the sale of its Canadian operations through a competitive process,” said Donald Guloien, Manulife’s chief executive. “We are delighted to be named the successful bidder.”
He said the transaction and the financing required to fund it would “in no way inhibit” Manulife’s ability to pay dividends.
The deal includes a “global collaboration agreement” that will see Manulife, Canada’s largest insurance company, distribute Standard Life investment funds in Canada, the United States and Asia. Within three years, the agreement is expected to more than triple the assets under management distributed by Manulife.
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Manulife’s purchase of Standard Life’s Canadian businesses requires approval from Canada’s Competition Bureau, the federal Finance Minister, and Standard Life shareholders.
On a conference call with analysts, Mr. Guloien said he is confident there won’t be a problem even as the two large Canadian insurance operations come under one roof.
“There’s nothing that should give the Competition Bureau pause,” he said, adding that Manulife was relatively underexposed in Quebec where Standard Life was strong. In addition, there is less overlap than would be expected in certain insurance lines that Standard Life was largely stepping away from, he said. In addition, there is broad competition in the market for retirement products.
Manulife executives indicated they expect the company’s primary regulator, the Office of the Superintendent of Financial Institutions, to bless the transaction, which is expected to close in the first quarter of 2015.
On the conference call, Mr. Guloien addressed why Manulife opted for a large domestic acquisition rather than pursuing a large investment in Asia as some analysts had expected.
Besides being easier to execute on the acquisition strategy, competition has driven up prices in Asia to the point that “some of the deals are simply not economical,” he said. Mr. Guloien added that Manulife assesses deals on a case-by-case basis to find “the best bang for the buck” once risks are taken into account.
“People have discovered Asia. We discovered it 125 years ago,” he said, explaining the recent excitement that has driven up prices in the market.
Manulife does not seek acquisitions with a “geographic preference” to have the business divided fairly evenly between Canada, the United States, and Asia — even though it has worked out that way in the past, he said.
The acquisition of the Standard Life business will be funded, in part, with proceeds of a $2.1-billion subscription receipts issue. The Caisse de depot et placement du Québec will purchase $500-million of the issue through a private placement.
The balance of the purchase price will come from funds on hand and possible future debt or preferred share issues, Manulife said.
In a statement, Manulife said no “significant immediate” job losses are expected, with the integration expected to take between 18 and 24 months.
“Even after that time, the vast majority of jobs in Quebec will be retained and we fully expect to have more jobs in Quebec,” the statement said, adding that Manulife “will choose the most capable people from each company.”