LONDON ( The Deal) -- Insurer Standard Life late Wednesday announced the surprise C$4 billion ($3.67 billion) sale of its Canadian business to Manulife Financial ( MFC) and said it would return 1.75 billion pounds ($2.88 billion) to shareholders.
The Edinburgh seller said it will make a one-off gain of 1.2 billion pounds on the sale, which follows its March purchase of Britain's Ignis Asset Management Ltd. for 390 million pounds from Phoenix Group Holdings plc and reflects a drive to pump its resources into market-leading businesses. The agreement with Manulife follows an unusually private auction process conducted by JPMorgan Cazenove Ltd. and includes a distribution arrangement for Manulife to sell Standard Life funds in North America and Asia. Standard Life shares were up 7.4%, or 28.5 pence, by early afternoon on Thursday at 414.6 pence; the company said the cash return will be worth 73 pence per share.
"This transaction provides our group and its shareholders with significant strategic and financial benefits. It accelerates our growth and reduces capital-intensity, while delivering substantial value today," said Standard Life CEO David Nish in a statement.
Manulife President and CEO Donald A. Guloien said that the purchase of Canada's No. 5 life insurer and addition of its 1.4 million customers will increase the Toronto company's presence in the French-speaking province of Quebec. It will boost its earnings per share by three cents over each of the next three years before transition and integration costs and increase, rather than detract from, its dividend firepower, the company said.
"The transaction will improve core earnings, however the transition costs reported in core earnings will create a modest, temporary headwind on our core ROE objective of 13%," added Guloien in a statement.
Manulife expects integration costs of C$150 million in the first three years, by the end of which it expects to have made annual cost savings of C$100 million through grafting on the Standard life business. The business it is buying has assets under administration of about C$52 billion.
Manulife will fund the deal in part with a C$2.1 billion-plus issue of subscription receipts priced at C$21.50 and a private placement to Caisse de depot et placement du Quebec for another C$500 million-worth of receipts. It will use internal resources and "possible future debt and/or preferred share issuances" to fund the rest, it said.
The transaction needs clearance from Standard Life's own shareholders, and a raft of regulatory consents. Standard Life has agreed to pay Manulife up to 10% of the transaction value if the buyer ends up having to make material concessions to secure Canadian Competition Bureau clearance for the deal.
Completion is expected in the first quarter.
Morgan Stanley and Scotiabank are financial advisers and Osler, Hoskin & Harcourt LLP and Torys LLP are legal advisers to Manulife. The JPMorgan Cazenove team advising Standard Life is led by Simon Pilkington and Edward Squire. Blake, Cassels & Graydon LLP's Greg Frenette, Dawn Jetten, Jake Gilbert and Stefan Timms are providing legal advice to Standard Life, alongside Standard Life in-house lawyers David Burns and Penny Westman.