Manulife Financial Corp. (MFC), said Wednesday it would raise C$2.5 billion through a common equity offering with an over-allotment option, in a bought deal arranged by Scotia Capital Inc. and RBC Dominion Securities Inc at C$19.00 per share. The proceeds from the offering is expected to go into general corporate purposes, which may include contributions of capital to its insurance and other subsidiaries, potential acquisitions or other growth initiatives.
The Toronto, Canada-based Manulife Financial, the holding company of The Manufacturers Life Insurance Company said that on completion of the offering The Manufacturers Life will have access to the highest level of capital since Manulife Financial company became a public company.
The company estimates that the pro forma Minimum Continuing Capital and Surplus Requirements or MCCSR ratio of The Manufacturers Life at September 30, 2009 would have been approximately 256% if if the entire amount of the proceeds of the offering were invested in The Manufacturers Life, compared with 229% MCCSR reported at the end of its third quarter.
Commenting on the offering, Manulife Financial Chief Executive Officer Donald Guloien said, "We are positioning Manulife for the long term. We believe this transaction achieves the fortress level of capital necessary to buffer against more conservative economic scenarios and to position us to take advantage of highly attractive acquisition and growth opportunities."
"Achieving these strong capital levels enables us to offer an even higher degree of security to present and future customers. It also gives us tremendous flexibility," Guloien added.
The transaction, which is expected to close on or about November 30, 2009, subject to satisfaction of customary closing conditions, is expected to generate net proceeds of approximately C$2.413 billion, after deducting underwriting fee and before the estimated offering expenses payable by the company.
The holding company has granted the underwriters an over-allotment option which can be exercised in whole or in part at any time up to 30 days after closing by underwriters to purchase up to an additional C$375.06 million in common shares at the same offering price of C$19.00 per share. If the over-allotment option is exercised in full, the total gross proceeds of the offering would be C$2.875 billion.
The offering price per share of C$19.00 is lower than its Wednesday's closing price of C$20.18.
Commenting on the transaction, Manulife Chief Financial Officer Michael Bell said, "...Although equity markets, interest rates and credit will continue to impact the Company's balance sheet and earnings, this transaction will strengthen Manulife's flexibility to respond to both risks and opportunities."
"While the common equity issue is expected to be dilutive to the Company's Earnings Per Share (EPS) and Return on Equity (ROE), the Company believes that strengthening its capital position is in the best long term interests of the Company and its shareholders," Bell added.
On investing the proceeds of the offering, the company noted that it has not yet made a determination as to how much of the proceeds will be invested in The Manufacturers Life and how much will be used for other corporate purposes.
The company also indicated that it intends to retire approximately C$1 billion outstanding indebtedness under its Credit Facility with Canadian chartered banks using its other cash resources.
MFC closed Wednesday at C$20.18, up C$0.18 or 0.90%, on a volume of 5.21 million shares on TSE. MFC ended the session at $19.02, down $0.01 or 0.05%, on a volume of 1.40 million shares on the NYSE.
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