M&A

18 November, 2009

UPDATE 2-Manulife to raise C$2.5 bln in bought deal

* Bought deal offering at C$19.00/shr

* Says common equity issue likely dilutive to EPS and ROE

* Shares closed up 0.9 percent at C$20.18 prior to news

(Recasts with CEO interview)

By Pav Jordan

TORONTO, Nov 18 (Reuters) - Canada's top life insurer Manulife Financial Corp (MFC.TO) said late on Wednesday it planned to issue C$2.5 billion ($2.4 billion) in equity, and reach the fortress level of capital it has sought all year.

Manulife, also the biggest life insurer in North America and one of the largest in the world, sold the equity at C$19.00 per share in a bought deal with a syndicate of underwriters led by the investment dealer arms of Bank of Nova Scotia (BNS.TO) and Royal Bank of Canada (RY.TO).

"I absolutely believe that (with this) we have gained fortress capital levels," Chief Executive Donald Guloien told Reuters shortly after the equity financing was announced.

"Fortress Level" capital reserves have been the central pillar of Guloien's administration since he took office in May, just two months's after Manulife reported its first-ever quarterly loss -- some C$1.87 billion -- for the period ending Dec. 31.

That loss came as global equity markets crashed, forcing Manulife to increase balance sheet reserves to cover investment guarantees linked to some of its products to C$5.783 billion at the end of 2008 from C$526 million at the end of 2007.

Taking over in May, Guloien has spent most of 2009 trying to build an impregnable level of capital at Manulife to guard against further adverse circumstances and protect the company from future market downturns.

He shocked the markets in August by announcing a decision to cut the company's dividend in half, sending shares plummeting.

On Wednesday he said the company was ready to grow through acquisitions.

"I suspect that when people realize that we have effectively put behind us any concerns about the level of capital that we might have and recognize that Manulife is now one of the strongest financial institutions in the world that that will bring very, very substantial benefits to our shareholders," Guloien said by telephone on Wednesday.

The pricing of the equity issue at C$19 was below the closing price of the stock on Wednesday at C$20.18. Guloien said that was about 5.5 percent off where the stock has been trading in recent days.

The company has allowed underwriters an over-allotment option to purchase up to an additional $375,060,000 in common shares at the same offering price, which if exercised in full would bring total proceeds of C$2,875,460,000.

Guloien acknowledged the common equity issue will be dilutive to earnings per share and return on equity, but said Manulife will be compensated by the resulting financial strength that would attract investors in a flight to quality.

"It means that we have the fire power to execute on transactions that are deemed to be highly attractive," Guloien said. "And we are being presented with more opportunities and more attractive opportunities than we've seen any time in my career and we want to be in a position to take advantage of those in a disciplined manner."

Manulife said that following the offering, the company also intends to retire approximately C$1 billion in debt outstanding under its credit facility with Canadian chartered banks, using other cash resources of the company.

Manulife said earlier this month it had a third-quarter loss as lower corporate bond yields and a change to actuarial assumptions offset stock market gains.

The Toronto-based company reported a net loss of C$172 million, or 12 Canadian cents a share, in the quarter ended Sept. 30, compared with earnings of C$510 million, or 33 Canadian cents a share, a year earlier. ($1=$1.05 Canadian) (Reporting by Pav Jordan; Editing by Phil Berlowitz)

Source: http://www.reuters.com