Manulife can bide its time waiting for AIG unit
When Britain's Prudential made a stunning bid for AIG's crown jewel in Asia last year, there was considerable gnashing of teeth at Manulife Financial.
Toronto-based Manulife relished a shot at AIA Group, but given its own financial struggles, it could not afford to pay anything near the $35-billion (U.S.) price.
So how is Manulife Financial CEO Don Guloien feeling now, as Prudential's bid for AIA Group falls apart?
Back in April, with Prudential giving every indication it could close a takeover that included $25-billion of cash, Mr. Guloien told The Globe and Mail: "To some degree [it's] a disappointment because I think Manulife had the wherewithal to be one of the few companies that could have closed a deal like that at one point in time, but ... at a totally different price."
Prudential was paying an "extremely full price," in Mr. Guloien's words. That view proved prescient, as this takeover is now a train wreck.
This deal started to unravel when Prudential's institutional shareholders balked at the price tag on AIA Group.
The purchase faced unexpectedly harsh scrutiny from U.K. regulators. The acquisition finally fell apart over the weekend, when Prudential attempted to cut the price to $30.4-billion.
AIG's owners - read, U.S. taxpayers - told the British company to get stuffed. The British insurer is now on the hook for more than $500-million in fees. Prudential's CEO is not expected to survive the fallout.
Where does this leave Manulife? Well, time is now on the Canadian insurer's side.
With a market capitalization of just $31-billion, Manulife cannot afford to jump into the role that Prudential has vacated. And AIG - again, read the U.S. taxpayer - has already shown it will not cut the price simply to get a deal done.
However, a great Asian insurance franchise is clearly back on the market. And if this situation drags on for a year or two, and there is every reason to believe it will, then Manulife figures to be a player.
The next act in this drama is likely an initial public offering of AIA Group on the Hong Kong stock exchange. It's the easiest way for the U.S. government to start clawing back its capital.
Selling a minority stake in AIA - something in the $5-billion to $10-billion range - will take many months. It would leave the U.S. government as an indirect controlling shareholder, so even when the process is complete, AIA Group will have done nothing to resolve long-term ownership issues.
If Mr. Guloien and his team at Manulife can bounce back from the setbacks of the past two years - including dealing with the insurer's unexpectedly large exposure to equity market volatility - then the Canadian insurer could get another shot at the prize. Recall that Manulife was, for a time, Canada's largest company, with a stock that commanded twice the price it fetches today.
Insurers tend to take a long-term view. Looking out a couple of years, it's possible Mr. Guloien gets his chance to show that Manulife does indeed have the wherewithal to reel in AIA Group.
Gerdau woos shareholders
Steel maker Gerdau is going to have to dig deeper to buy out minority shareholders in TSX-listed subsidiary Gerdau Ameristeel, if the first reaction to the Brazilian parent's $1.7-billion takeover offer proves correct.
Gerdau is attempting to clean up its corporate structure by taking out the 33.7-per-cent public stake in its North American unit, emulating moves by foreign companies over the past decade. As in other buyouts, there's likely to be a fight over price. Minority shareholders enjoy some leverage, and activist institutions such as Jarislowsky Fraser have made a good living by squeezing every penny from buyers.
Gerdau opened the bidding at $11 per share. That's a rich 53-per-cent premium to where this stock was trading. But no offer is ever rich enough to silence investors who see no downside in asking for more. Speculation Wednesday had Gerdau Ameristeel eventually fetching $12.
The starting point for this argument is the fairness opinion that Gerdau Ameristeel's special committee obtained from RBC Dominion Securities. It pegged the value of the subsidiary at between $11 and $13. J.P. Morgan is advising the Brazilian parent on the offer.
However, expectations on this deal should be tempered, as Scotia Capital published a report that pointed out Gerdau enjoys a number of advantages. Trading desk analyst Catharine Sterritt described the offer as "effectively 'pre-packaged' in that the Gerdau Ameristeel special committee has unanimously agreed to recommend the buyout despite the bid being at the low end of the $11-$13 independent valuation range."
Ms. Sterritt, who focuses on takeover and spinout as what's known as event driven/catalyst strategist for Scotia, also pointed out that the Gerdau offer is pitched at a fair price, and that "weak market conditions may make shareholders less willing to risk the premium to market being offered."
See Andrew Willis's Streetwise Blog at ReportonBusiness.com
