Manulife Opts for Subscription Receipts Preferred by Canada

Shares of Manulife Financial Corp. (MFC) moved up 0.4% to close at $20.14 on Sep 16, following the company’s Sep 15 announcement that it has successfully raised ($2.04 billion) C$2.26 billion by way of subscription receipts.

A subscription receipts helps to finance acquisitions much in advance. Moreover, these do not impose an obligation on the acquirer to utilize the fund raised if the acquisition deal falls apart since the money can be returned to subscribers.

Subscribers also automatically receive a security from the issuing company upon completion of the acquisition. In the event of a delay in the acquisition’s closure at the specified date, the subscription receipts are cancelled and the subscriber gets back his money with interest.

Being a Canadian company, Manulife is comfortable with subscription receipt offerings since the domestic market is well accustomed to this king of financing, unlike jurisdictions such as the United States where the subscription receipt structure is still unfamiliar.

Manulife will keep the funds in a trust until the closing of the acquisition of Standard Life Oversea Holdings of Standard Life plc which was announced previously.

We believe that the company has successfully taken the first step toward completing the deal valued at $3.7 billion (C$4 billion). Other requirements such as regulatory and shareholders’ approval from both companies must also be met for the successful closure of the strategic deal.

For Manulife, the purchase of Standard Life Overseas Holdings which is expected to be through by the first quarter of 2015 will deepen its existence in the Canadian market. The acquisition will accelerate Manulife’s growth strategy for its Canadian business, in particular wealth and asset management, while building an already established and successful wealth and asset management partnership with Standard Life. The deal will also deepen the company’s presence in Quebec and expand its investment capabilities globally.

We believe the remaining amount of finance required for the acquisition will be met from the existing cash as well as debt and/or preferred share issuances.

Manulife carries a Zacks Rank # 3 (Hold). Better-ranked stocks include China Life Insurance Co. Ltd. (LFC), Lincoln National Corporation (LNC) and Health Insurance Innovations, Inc. (HIIQ). All these stocks carry a Zacks Rank #2 (Buy).