Toronto-based Sun Life Financial Inc. is looking to grow its market share in one of the world’s largest markets for life insurance with its recent purchase of Philadelphia-based Lincoln National Corp.’s British operations, says Steve Kee, assistant vice president of communications with Sun Life.

The deal, which is subject to regulators’ approval, is valued at $359 million and is expected to be completed in the third quarter of this year. Upon completion, the acquisition will increase Sun Life’s assets under management in Britain by almost 60% to $19 billion — as well as double the number of its policies to 1.1 million.

“This transaction is really an excellent fit on a number of levels,” says Kee. “It’s a compelling opportunity to expand the scale of our business [in Britain, in which] we have acquired a complementary and sizable block of business.”

Kee says the transaction is financially attractive to Sun Life, providing the insurer with estimated earnings per share accretion of 8¢ to 10¢ in 2010. Return on equity is estimated to increase by 0.2%.

In addition, the acquisition will enhance Sun Life’s British operation’s earnings power; Lincoln’s business and distribution platform in Britain, including relationships with independent financial advisors, will also provide Sun Life with an expanded opportunity to sell additional products.

“Lincoln is in a business that we already know well,” says Kee. “We can leverage some of our prowess [in Britain] and look forward to expanding potential opportunities that will position Sun Life for new business opportunities [in Britain].”

However, although the acquisition is a positive move for Sun Life, it is not a game-changer, says Michael Goldberg, research analyst with Montreal-based Desjardins Securities Inc., in a recent research note to investors: “It is, instead, a modest tuck-in that still leaves Sun Life with capacity if other opportunities arise. For Lincoln, it allows redeployment of capital from a non-strategic business.”

At the same time, Lincoln announced a registered publicly underwritten offering of US$600 million of its common shares.

The common stock offering is part of Lincoln’s broader capital-raising plan, in which it plans to sell up to US$500 million in senior debt and approximately US$950 million in preferred stock under the U.S. Treasury’s Capital Purchase Program.

These actions by Lincoln supplement dividend reductions, cost cuts and other actions previously taken to strengthen the company’s capital and liquidity. The measures also solidify the firm’s capital positions at both the subsidiary and holding-company levels.

Sun Life and Lincoln each hold books of business in life insurance, pensions and annuities, but the acquisition is a combination of closed blocks of business, says Goldberg, managing existing client relationships that do not solicit new relationships.

“As such,” he adds, earning accretion comes from the added scale and synergies in combining the two closed blocks.”

Sun Life has made no attempt to keep its plans to be in the deal stream a secret, Kee says. Even during these turbulent times, the firm wants to demonstrate its financial strength.

“We were looking for opportunities that fit with our business,” he says, “and we were really looking to see what came up and to ensure that it was the right deal at the right time.”

The deal comes as no surprise to a number of research analysts who had speculated that Sun Life would make this acquisition back in October 2008, when Sun Life sold its 37% stake in CI Financial Income Fund to Bank of Nova Scotia, bringing $2.3 billion in cash into the Sun Life coffers. Less than a week before the sale of the CI holding, Sun Life had hired several key executives from Lincoln, including former CEO Jon Boscia.

Analysts also had speculated about Connecticut-based Hartford Financial Services Group Inc. , Des Moines, Iowa-based Principal Financial Group and New York-based American Insurance Group Inc. ’s U.S. life and annuities business as being possible targets by Sun Life.

Upon completion of the Sun Life/Lincoln merger, the two companies will continue to carry the Sun Life name, a brand that has been in Britain for more than a century.

Sun Life has operations in the U.S., Britain, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. At the end of March, the company had total assets under management of $375 billion.

@page_break@“Our next steps,” says Kee, “will be to focus on the integration, look for the business and growth opportunities, and evaluate the business to determine the best way to combine things together.”

IE