Hancock, Manulife Shares Slip on Merger News

Wall Street reacted warily Monday to Manulife Financial Corp.’s bid to buy life insurer John Hancock Financial Inc. for about $10 billion in stock, as concerns mounted that the resulting insurance giant wouldn’t achieve promised cost savings.

The deal would create the second-largest life insurer in North America and the largest in Canada. Manulife is currently the No. 3 Canadian insurer.

John Hancock shares, which rallied 7% Friday on reports of the pending deal, fell as much as 3% Monday before closing down 48 cents, or 1.4%, at $33.82 in New York Stock Exchange trading.

That was below the implied bid price of about $34.59 a share based on Monday’s closing price for Manulife’s stock, which fell $1.02 to $29.18 on the NYSE.

The companies said the deal was worth $37.60 a share, based on Manulife’s closing price last Wednesday, before speculation over a pending deal affected trading in the shares.

“We advise clients to sell into strength,” Fox-Pitt, Kelton analyst Jason Zucker wrote in a Monday research note.

Zucker called the companies’ projection of $255 million in cost savings from the deal “a stretch,” saying that would be above normal for a merger and that only a few businesses of the two companies overlap.

David D’Alessandro, chief executive of John Hancock, defended the deal in a conference call with analysts Monday. “This is not two mediocre sales organizations coming together,” he said. He is set to become president of the combined company 12 months after the deal closes.

In another industry shift on Monday, Seattle-based Safeco Corp. said it would sell its life insurance unit to focus on property and casualty lines. The news was announced after markets closed.

Prospects for life insurance companies, whose annuity businesses and investments suffered when stock markets were weak, have begun to improve. But analysts have said that companies will have to attain scale to remain competitive.

Other life insurers’ shares were mostly higher on Monday. Prudential Financial rose $1.05 to $38.06, Principal Financial Group added 71 cents to $31.05 and Hartford Financial Services Group was up 86 cents at $52.83, all on the NYSE.