Sun Life Financial Services of Canada Ltd. (TSE:SLC)(NYSE:SLC)is buying Clarica Life Insurance Co. (TSE:CLI)in a $7.3-billion merger that will create a powerhouse in the Canadian insurance industry. But it will cost 1,500 people their jobs.
The all-stock merger, which was announced Monday prior to the opening of trading on stock exchanges, values Clarica at $54.65 per share. Shareholders of Clarica will get 1.5135 shares of Sun Life for each one of their Clarica shares.
On Monday, shares of Sun Life finished down $1.17 at $33.60 on the TSE, while Clarica shares gained $1.10 to close at $52.16.
The united company will be tops in Canada with 7 million customers, $21.7 billion in revenues, assets under management of $344 billion and total assets of $140.2 billion.
The merger is also expected to create the largest Canadian insurance company in terms of stock market capitalization, and one of the top five in North America.
This is the first of what's expected to be several takeovers as the Canadian insurance industry begins to consolidate. Insurance companies that "demutualized" several years ago are now able to merge and acquire. They had been prohibited from taking part in M & A activity among themselves for the first two years after going public.
Clarica, which was known as Mutual Life before going public in 1999, will keep its own name and become a subsidiary of Sun Life. The new company will be headquartered in Waterloo, Ont. Sun Life will keep its corporate headquarters in Toronto.
"The combination is expected to create lower cost structures, increased revenue and expanded distribution capabilities, which will deliver greater economic value to customers and shareholders," Donald Stewart, Sun Life's chairman and CEO, said in a statement.
"The transaction also represents a material step towards Sun Life Financial's goal of achieving leading positions in key North American markets, creating an even greater base for international expansion," Stewart said.
Stewart will keep his job as chairman and CEO of the merged firm, while Clarica president and CEO Bob Astley will keep his current role and also become president of the merged company's president of Canadian operations.
The companies said that roughly 1,500 will be cut out of a total of 8,600 staff, but added that the full impact on jobs will not be known until the integration planning process is completed. There will be no staff reductions before June 30, 2002.
Clarica's board of directors is recommending that company shareholders accept the deal, which is still subject to approval by the federal government.