Canada Life Financial Corporation, long considered a prime acquisition candidate, may soon find itself in new hands. Manulife Financial has made a hostile bid of $4.1 billion (C$6.4 billion) for outstanding common shares in the company. According to conditions of the offer, Manulife could pay out a maximum of $1.54 billion (C$2.4 billion) in cash and issue a maximum of 92 million shares.

According to Manulife, CEO Dominic D'Alessandro approached Canada Life last week with an offer of $24.36 (C$38) per share. After David Nield, CEO of Canada Life, rebuffed the carrier’s suitor, Manulife returned with an offer of $25.64 (C$40) per share or 1.055 Manulife common shares for each Canada Life common share, 30% over the weighted average trading price of shares of Canada Life over the last 20 days.

"In my view, this proposal does not reflect the value of our company," Nield said in a statement. The company has brought on BMO Nesbitt Burns Inc. and Credit Suisse First Boston as financial advisors in the matter.

Although Canada Life again turned down this offer, Manulife is going ahead with its effort to woo shareholders directly. "We have concluded that further delay would be imprudent," D’Alessandro said in a statement. "Our offer gives Canada Life shareholders a compelling choice. They can realize a significant cash premium on their investment or continue as Manulife shareholders participating in the future growth of a major market leader."

According to Fitch Ratings, the acquisition, if successful, could improve Canada Life’s credit rating because of its association with a larger international insurer with more market diversification, especially in North America. However, it predicted that the hostile takeover is likely to attract the attention of other potential buyers.

Similarly, Moody’s Investors Service raised the issues of outside bidders, pointing out that any further ratings change will be contingent on the financial strength of the buyer, which is currently unknown. With news of the hostile takeover, Moody’s changed its outlook on Canada Life from negative to uncertain.

The two companies’ combined assets at the end of September were $123 billion (C$192 billion), and their combined premiums and deposits were $26 billion (C$40.8 billion). According to the Canadian Insurance Annual Statistical Review 2002, Manulife lagged in assets behind market leader Sun Life of Canada. Manulife, which would climb back to first place if it successfully bought Canada Life, lost the top spot to Sun Life after that company’s acquisition of Clarica Life.

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