Canada Life bid to deliver £4,000 bonus

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The Independent Online

British shareholders in a Canadian insurance company will reap an average £4,000 windfall if a multibillion-pound takeover bid from a rival goes ahead.

British shareholders in a Canadian insurance company will reap an average £4,000 windfall if a multibillion-pound takeover bid from a rival goes ahead.

About 60,000 UK and Ireland-based investors in Canada Life, who received their shareholdings when the group demutualised, are in line for the payout if Manulife Financial succeeds with its £2.7bn hostile offer.

Canada Life, which derives a third of its business from the UK, said it was studying the offer and would respond by 13 January.

Its initial opinion was that the bid "did not represent fair value to shareholders". It urged investors not "to do anything immediately".

Manulife, Canada's second-biggest insurer, has offered shareholders 40 Canadian dollars (£16.17) per share in cash or the equivalent in Manulife shares. The offer, which is being posted to Canada Life shareholders, represents a 30 per cent premium to the value of the stock before the bid was announced.

Any payout would represent a double windfall for Canada Life shareholders, some of whom received up to £80,000 when the group demutualised in 1999. The majority of the 76,000 UK policyholders opted to take the shares, which started trading at C$15. The average payout in 1999 was about £2,000.

Consolidation in the Canadian insurance industry has gathered pace over the past 12 months as companies struggle to cope with the downturn in equity markets, which has hit their reserves. Clarica was bought by Sun Life Financial in May. While a white knight could emerge with a counter bid for Canada Life, industry observers were doubtful, pointing to the lack of free cash on groups' balance sheets.

Success by Manulife is likely to prompt speculation about the future of Canada Life's UK arm, which picked up the British operation of Manulife Financial in 1995 for an undisclosed sum after its Canadian rival lost interest in the British market.

Canada Life sells investment products in the UK solely through independent financial advisers after recently closing its life insurance and pension salesforce.

However, a source close to the companies sought to dampen suggestions that Manulife could seek to make further cuts in the UK, calling the British business "the jewel" in Canada Life. It recently acquired the group insurance business of Royal & SunAlliance for £60m, as part of the beleaguered British company's drive to raise £800m from disposals.

Canada Life's board of directors, which has rejected Manulife's offer, has formed a committee to look at alternatives.

In a statement issued over the weekend, it said "shareholders will have plenty of time to respond to this unsolicited bid". The offer is open until 28 February and could take longer to close because it will be subject to approval from Canada's regulatory authorities.

Dominic D'Alessandro, Manulife's president and chief executive, called the offer a "full and fair valuation". If successful, the bid would create Canada's largest insurer and the fourth-largest in North America.

Manulife had funds worth C$139.2bn under management at the end of September. Canada Life, which was founded in 1847 as the country's first domestic life insurance company, has total funds of about C$65bn under management.

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