Manulife Financial Corp.'s top brass were taking heat from their shareholders just over a year ago. Why weren't they taking advantage of a consolidation wave sweeping the insurance industry in Canada and beyond?
Chief executive Dominic D'Alessandro acknowledged those complaints at the company's annual Investor Day in summer 2002. "If I get asked once, I get asked a thousand times: `You've got all this capital. Your competitors are buying things. Why are you sitting on your hands?' " he said.
D'Alessandro has an emphatic answer to that question today. Manulife's $10.9 billion acquisition of John Hancock Financial Services Inc. will instantly transform a 116-year-old company into a dramatically larger Canadian insurer writing the bulk of its business south of the border.
One way to measure the scale of the deal: Manulife earned $278 million in the first half of this year, while Hancock earned $236 million before gains and losses on investments.
Talk of mergers and acquisitions has dominated conversation about Manulife and other Canadian insurers for the past four years. A wave of demutualization among the Canadian insurers, taking place about the same time that John Hancock went through the process to become a public company, triggered speculation first and then action.
Manulife was one of those mutual insurers converting to public stock ownership. Its initial public stock offering in September 1999 was the largest in Canadian history, and that's how pressure began to build. All of the newly public Canadian insurers found themselves with lots of capital to put to work as a result of IPOs, and Manulife raised the most of all.
The jockeying began last year. Sun Life Financial Inc. overtook Manulife as Canada's largest life insurer with its acquisition of Clarica Life Insurance Co. Seven months later, Manulife responded with a hostile takeover bid for smaller rival Canada Life Financial Corp. D'Alessandro wasn't sitting on his hands any longer.
But the hostile bid met stiff resistance and Canada Life shareholders ran into the arms of a corporate white knight, Great-West Lifeco. As a result of the deal, the winning suitor, controlled by the billionaire Desmarais family, became Canada's largest life insurer measured by assets.
The pool of possible insurance merger targets was dwindling rapidly. A debate grew around Canada's ban on mergers between banks and insurance companies, attracting supporters and others who believed the ban should be scrapped. Insurers like Sun Life, which had committed itself to deals within its own industry, opposed any change. Meanwhile, Manulife had reportedly held merger talks with the Canadian Imperial Bank of Commerce.
All of those deals and maneuvers, so closely followed at the time, look like small potatoes compared to the Hancock acquisition. By value, yesterday's transaction is twice as big or more than the other Canadian mergers.
Manulife has made its big American deal exactly 100 years after it first entered the US market. The company acquired a license to sell insurance in Michigan in 1903 and opened an office in Detroit that year.
By the time it began selling insurance to Americans, Manulife had already expanded to distant points on the map. The company started operations in China in 1897 and opened an agency in Manila five years later.
That kind of geographic diversification continues to define Manulife's business today. The company makes 20 to 25 percent of its profits in Asia, where Manulife serves many more countries, but it still counts on Hong Kong and the Philippines for most of the earnings.
The US accounts for about half of Manulife's revenues and a third of its profits. Those slices of Manulife's business pie are about to get much thicker with its acquisition.
The purchase of John Hancock could prove to be a huge boost for Manulife, but Dominic D'Alessandro and his managers must work hard to make sure it pays off. Otherwise, D'Alessandro could be reminded of his comments from summer 2002, a tough assessment of other executives who struck merger deals.
"They created headlines and, in some cases, bigger companies," he said. "But it remains to be seen if they created value."
Steven Syre can be reached at email@example.com.