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Manulife to buy John Hancock in massive deal

has agreed to buy Boston insurer

in a blockbuster $15-billion deal that would mark one of the biggest corporate takeovers in Canadian history.

The proposed merger, announced late Sunday afternoon, would give Manulife a market capitalization of $34.7-billion and catapult it into second place behind the Royal Bank of Canada in the rankings of the country's largest publicly traded companies.

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Observers said it also would create a formidable, Toronto-based organization with a strong footing in the United States and the financial muscle to compete with some of the world's largest banks and insurers.

If shareholders approve the deal, Manulife will become the No. 2 life-insurance company in North America, and the fifth-largest in the world, with more than 20,000 employees in North America and Asia.

The companies posted a combined annual profit of $2.2-billion last year, and have $333-billion in assets.

"This would be unbelievable," said an analyst speaking on condition he not be named. "If these guys can pull this off, it will be a real coup - a Canadian company scooping up a brand-name U.S. business."

Vanessa Wilson, an analyst with Deutsche Bank Securities LLC in New York, said Manulife immediately will become "a very important player" in the U.S. market if it consummates the merger.

Coincidentally, the two chief executive officers who spearheaded the merger share a last name, although they are not related.

Dominic D'Alessandro would remain president and CEO of Manulife.

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David D'Alessandro, chairman and CEO of John Hancock, would be chief operating officer of the merged company and oversee the North American insurance business, which would have its headquarters in Boston under the John Hancock banner. He would be named president of the merged company 12 months after the deal closes.

Manulife said it is the biggest takeover yet by a Canadian company. JDS Uniphase Inc., which had headquarters in Canada and the United States, has orchestrated larger deals, but Manulife said they were technically U.S. acquisitions.

In addition to gaining a powerful beachhead in the U.S. market, the deal would enable Manulife to bulk up at home. Maritime Life Assurance Co., John Hancock's Halifax-based Canadian subsidiary, has about 2,900 employees, $15-billion in assets under administration and nearly $900-million in shareholders' equity.

"Just look at how beautiful it fits," Dominic D'Alessandro said in an interview. "They have a very substantial Canadian business that puts us back at the top of the pack in our home market. They have a very substantial U.S. business [with]strengths or areas where we are not particularly present."

The combined company also would have one of the largest life-insurance networks in Asia, with operations in Japan, Hong Kong and China.

Mr. D'Alessandro declined to provide estimates of potential job cuts but said the company plans to reduce its payroll "without brutalizing the work force."

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The two sides have promised to wring $350-million in cost savings out of the company within three years.

Under the terms of the all-stock deal, which is to close in the second quarter of 2004, John Hancock shareholders would receive 1.1853 common shares of Manulife for each John Hancock share they own, or roughly $37.60 (U.S.) a share. Manulife is paying an 18.5-per-cent premium based on the closing price of John Hancock's stock on Sept. 24, just before rumours of an impending deal sent the insurer's shares soaring in U.S. trading. Manulife's market cap dipped to just under $14-billion when news of a possible merger leaked out in news-media reports on Friday. John Hancock is valued at about $9.9-billion.

Investors and analysts appeared to welcome the news and pointed out that the two companies have complementary distribution channels in the U.S. market and tend to target similar customers.

Manulife was relegated to the sidelines of the merger fray in Canada for the past two years while its main rivals added heft with major acquisitions.

The insurer launched a hostile $6.4-billion (Canadian) bid for Canada Life Financial Corp. in December but was trumped by a last-minute bid by Great-West Lifeco Inc. of Winnipeg. Rival Sun Life Financial Inc., meanwhile, eclipsed Manulife in 2002, when it swallowed Clarica Life Insurance Co. in a $6.9-billion merger.

Given the lack of available acquisition targets in Canada, Manulife essentially had two options for growth: venture beyond its borders in search of a major foreign acquisition, or hope that Ottawa changes its policy and allows "cross-pillar" mergers between banks and insurers to proceed.

Manulife was in talks last year with the Canadian Imperial Bank of Commerce about a possible combination, but the deal unravelled when the federal government informed them it had no plans to change its position on bank-insurance pairings.

If the John Hancock deal succeeds, however, the frothy debate over allowing such mergers may lose some of its drama. Manulife would have its hands full for the foreseeable future digesting the John Hancock acquisition, and there would be little appetite to consider merging with a big bank.

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