Standard Life Surges as Manulife Financial Buys Canada Unit

Sep 04, 2014 12:18 pm ET

(Updates with closing share price in second paragraph)

Sept. 4 (Bloomberg) -- Standard Life Plc surged the most in more than five years after the insurer sold its Canadian business to Manulife Financial Corp. for C$4 billion ($3.7 billion) with plans to return cash to shareholders.

The stock jumped as much as 11 percent, the biggest gain since 2009, and closed up 8.1 percent to 417.2 pence in London. Scotland’s largest insurer, based in Edinburgh, also said late yesterday that it will return 1.75 billion pounds ($2.9 billion) of the proceeds to investors.

Standard Life has got “a full price of nearly 20 times earnings for one of its least attractive assets,” Alan Devlin, an analyst at Barclays Plc with an equal weight recommendation on the shares, wrote in a note to clients. “In our view, all three of the large Canadian life insurers are likely to have been interested.”

Standard Life Chief Executive Officer David Nish, 54, has been working to build the company’s fee-based asset-management operation while cutting reliance on businesses that require more capital. Earlier this year, the company bought Ignis Asset Management from Phoenix Group Holdings, adding 59 billion pounds of funds.

The Manulife deal values the business, which has C$52 billion in assets under management, at 19.5 times estimated 2014 operating earnings, according to the statement.

‘Significant Transaction’

“This is a significant transaction,” Nish said on a conference call. “It reduces our capital requirements and allows us to realize fully the value of the business for our shareholders. Most people would think we’ve got a good price.”

As part of the transaction, Manulife agreed with Standard Life Investments to offer its funds to clients in Canada, the U.S. and Asia that Nish said will triple assets under management over the next three years from $5.6 billion.

The CEO said the sale would be earnings accretive with the remaining proceeds from the sale used for “other investment opportunities.” Standard Life Investments CEO Keith Skeoch said the firm is planning to set up an office in Toronto for institutional clients after the deal is completed with Boston becoming its main hub for North America.

The planned return of capital to shareholders is equivalent to 73 pence per share. The company paid an interim dividend of 5.6 pence a share to investors for the half year.

--With assistance from Zachary Tracer in New York and Katia Dmitrieva in Toronto.