Manulife Sale of Cdn$2.5 Billion is Completed, But Disappointing

Canadian insurer Manulife Financial raised eyebrows in November when it surprised the stock market with a Cdn$2.5 billion common share offering. Now that the stock has been sold, the results are disappointing to say the least.

For starters, it doesn't look as if its "overallotment option," known stateside as a "green shoe," has met with good reception. A company representative told National Underwriter that the insurer didn't think that the option to sell an additional $375 million in common shares would be exercised during the 30 days following the closing on November 30.

According to Manulife, the shares were bought for resale by a syndicate led by Scotia Capital Inc. and RBC Dominion Securities for Cdn$19 a share. Manulife's stock is trading on the Toronto Stock Exchange at around Cdn$18.50, slightly below the sale price but well below the almost Cdn$27 that the stock traded at earlier this year.

As previously reported by BNET Finance, Manulife, which owns Massachusetts-based John Hancock, surprised investors with the offering. According to relatively new CEO Donald Guloien, Manulife "needed to fortify its capital position" to keep the insurer above the minimum standards required for a life insurer.

But Manulife never told shareholders that such a move was imminent, and they were livid. Stephen Jarislowsky of Jarislowsky Fraser Ltd. told the Toronto Globe and Mail that he was "terribly disappointed" with Manulife's stock sale and thought it was "pretty god-awful that there was really no warning." Obviously other investors agreed.

Manulife had better watch its back. In the north of the border footrace, it remains Canada's largest insurer, but third-ranked Sun Life Financial says it is looking for U.S. acquisitions, and has done well in key areas such as variable annuities.