Thursday, February 09, 2006

Manulife Ready to Dive into Acquisitions Again?

The Globe and Mail, Andrew Willis, 9 February 2006

Could Canada's life insurers, on the sidelines digesting acquisitions for the past year, be ready to get back in the takeover game?

With the mergers and acquisitions cycle in full swing on the back of low interest rates and sky-high CEO confidence, Manulife Financial gets the nod as the insurer most likely to pick off a rival. A report last month from UBS Securities crunched the numbers and found that, just two years after its record-setting buy of John Hancock, Manulife once again sports the strongest balance sheet of the domestic players, along with a management team that has proved it can handle big acquisitions.

Takeovers are always risky, as buyers face the cultural and operational problems that come with trying to bash two companies together. Manulife wins kudos for wringing far more savings from John Hancock than expected -- synergies were $325-million in 2005, or 27 per cent more than forecast -- with minimal customer disruption.

Where might Manulife strike? Well, any deal is likely to be friendly. "We believe the most attractive market remains the U.S., where a sizable in-market deal would continue to build Manulife's scale/market share," said UBS financial services analyst Jason Bilodeau. "Such a deal is likely to offer considerable upfront synergy opportunities and would likely be welcomed by investors."

Having said that Manulife is most likely to move in North America, Mr. Bilodeau highlighted one British and two American companies as probable targets:

Principal Financial Group is an Iowa-based company that sports a market capitalization of $13.2-billion (U.S.), and focuses on individual clients, rather than group insurance, a strategy in step with Manulife's.

Nationwide Financial Services of Columbus, Ohio has amassed through acquisitions $158-billion in assets and a capitalization of $6.5-billion.

Prudential PLC is a British insurer valued at £13.5-billion ($23.5-billion U.S.) and offers a North American buyer a presence in both Europe and Asia.

The UBS report concludes that the other three major Canadian insurers -- Sun Life Financial, Great-West Lifeco and Industrial Alliance -- are less likely to do blockbuster deals. With less capital and slightly different strategic needs, the expectation is that this trio will make smaller purchases in areas such as wealth management.

However, Mr. Bilodeau said Great-West has consistently wrung better-than-expected savings from acquisitions. And as a member of the Power Corp. conglomerate, the company enjoys the benefit of a deep-pocketed parent.