Analysts were fairly tough on Manulife Financial’s executive team in a conference call to discuss its surprise $6.4 billion bid for rival Canada Life Financial.
The two central questions that analysts had for Manulife CEO, Dominic D’Alessandro, concerned the wisdom of a hostile bid for Canada Life, and the strategic direction of the deal.
Goldman Sachs analyst, Heather Wolf, pointed out that hostile deals in the financial sector rarely work out. D’Alessandro agreed, but he insisted that the deal should be characterized as an “unsolicited” offer rather than a hostile one. He said that there is no animosity between the firms’ executive teams.
Rather, D’Alessandro indicated that the move reflects a difference of opinion over price. He said that Canada Life CEO, David Nield, obviously wants to obtain maximum value for his shareholders. And, he has a different opinion than Manulife does regarding that value. D’Alessandro said Manulife believes its offer is a fair market price. Reacting to the news that Nield issued a statement calling the offer too low, D’Alessandro said that was to be expected.
D’Alessandro indicated that Manulife initially offered the firm $38 per share on Friday, with the suggestion that it would be willing to go higher if Canada Life could show it more value. He suggested that Canada Life is not far enough along in its own internal valuation process to demonstrate greater value. Combining that with the fact that Manulife would have to reveal its initial approach to the market within 10 days (under U.S. securities law), and Manulife decided to go ahead with its bid.
Fearful of the news leaking out within the 10 days, D’Alessandro said it decided to raise its offer to $40, to ensure that it wins the firm. Faced with market risk, it prefers to go straight to shareholders with the deal.
As for the strategic wisdom of the deal, analysts were generally satisfied with the notion of gaining scale in Canada, but they noted that Canada Life has significant businesses in areas in Europe and the U.S. that Manulife has pointedly avoided. Indeed, Manulife sold its European businesses to Canada Life several years ago.
D’Alessandro suggested that it is going into the deal with an open mind, and that it may now be willing to play in businesses that it didn’t want several years ago. He noted that the deal is primarily aimed at growth, not cost savings. He indicated that most of the synergies in the deal could be expected to come through attrition.
D’Alessandro declined to indicate where cuts may be made, suggesting that he’d rather discuss that with the people affected, after a deal is completed. He also allowed that the unsolicited nature of the bid has hampered its ability to make those sorts of judgments ahead of time. However, D’Alessandro declined to comment on whether it has had other discussions with other firms about selling certain assets of the combined companies.
Manulife indicated that it would likely take two years to fully integrate the two firms. But D’Alessandro said that this would not stop it from entertaining other big strategic moves. Any other possible deal will be evaluated “on its merits” he said.
Analysts grill Manulife over offer for Canada Life
Deal aimed at growth not cost savings says D’Alessandro
- By: James Langton
- December 9, 2002 December 9, 2002
- 13:25