Thomas Moloney still hadn't sold the investment world on the merger between Boston's John Hancock Financial Services Inc. and Toronto's Manulife Financial Corp. as of late yesterday, but it wasn't for lack of trying.
Hancock's chief financial officer sounded tired and hoarse yesterday as he chatted on a cellphone in the back of a taxi ferrying him to Toronto's Lester B. Pearson International Airport last night. After working for more than a week to hammer out a deal, announced Sunday, Moloney spent the past two days explaining the rationale for putting the two life insurers to get together.
Wall Street, at least, isn't yet buying the explanation. Both Hancock and Manulife saw their stocks slip a little more yesterday, after a punishing trading session Monday that erased 3.4 percent of Manulife's market cap in a day.
Hancock closed yesterday at $33.80 on the New York Stock Exchange, down two cents, or 0.06 percent. Manulife's depositary shares on the exchange, which trade as US proxies for the company's Toronto Stock Exchange shares, ended the day at $28.90, down another 28 cents, or 0.96 percent.
"Once the story gets out and gets told, I think things are going to go back the other direction," said Moloney, who said he made presentations to three investor groups yesterday morning, one over lunch, and three more in the afternoon. Executives from both companies will give similar investment talks tomorrow in New York and Friday in Boston, followed next week by stops in Montreal, Toronto, and then, Moloney said, "across Canada and the US."
Let the road show begin.
Manulife's acquisition of Hancock calls for the Canadian insurer to hand over 118.53 of its depositary shares for every 100 of the US insurer's. At that level, the Hancock stock should be worth $34.26 as of yesterday's closing prices -- although stocks of acquired companies never trade for 100 percent of the deal price until it closes, on fears that the deal could fall apart.
David Carlon, who managed Hancock's internal management consulting division from 1995 to 2000 and still owns company stock, said yesterday that he isn't concerned about the long-term prospects for his shares. He agreed with Moloney that over time the stock will move higher again.
The merger with Manulife is "exactly what we were looking for all along," he said of discussions the company's managers had even before its January 2000 initial public offering. Before then, Hancock had been a mutual insurer, technically owned by its policyholders and therefore unable to participate in mergers and acquisitions.
"This is close to an ideal scenario," said Carlon, now a director at FileNet Corp. "Two big companies with complementary products and markets, and an all-stock deal. This is outstanding for stockholders."
Not everybody on Wall Street agrees.
Analysts on a conference call Monday repeatedly expressed concerns about having to trade their Hancock shares for Manulife depositary receipts, and at the prospect of no longer getting their financial information according to US accounting standards. In general, Canadian accounting doesn't require as detailed disclosure as US accounting rules.
"Intuitively, I know Manulife shares are cheap" after the recent falloff, said one analyst. "But statistically, I can't prove it in the same way I can" with US accounting rules.
Some analysts also questioned why Hancock didn't negotiate a "collar," or lower level for Manulife shares at which time the deal would have to be renegotiated. Since it's an all-stock deal, the lower the acquirer's stock, the lower the payoff for Hancock investors.
Moloney said the lack of price collars on the deal is typical for large transactions, and that Manulife still had the right to match competing offers, if any, from other potential acquirers. "I don't know of any deals of this size done with collars on them," he said of the deal.
Mutual funds and other large American institutional investors also have rules about how much international stock they are allowed to own. Many will be forced to divest their Hancock shares once they convert to Canadian Manulife shares.
Moloney also expressed frustration yesterday at arbitragers and hedge fund managers, who he accused of spreading false information to intentionally hold down Manulife shares. Yesterday, he said, short sellers and arbitragers were telling investors that Prudential Financial or American International Group might step in front of Manulife and make a hostile bid for Hancock.
"That's what their job is, to try to play around with the markets for a penny or two in short-term profit," Moloney said. "We've seen this kind of action before and not just with us. That's just what you have to put up with."
He said Manulife had pledged to limit the problem of accounting differences by presenting its information according to both Canadian and US rules, "not today or tomorrow, maybe, but ultimately."
In the meantime, Moloney said, he and other high-ranking company executives will continue to woo investors and investment advisers with the road show.
"There will be some technical disconnects, which always happens when two companies are merging and is more complicated by the cross-border stuff," he said. "We'll just continue working to get the story out there."
Scott Bernard Nelson can be reached at firstname.lastname@example.org.