Manulife May Be Targeting Lincoln National, Principal Financial For U.S. Acquisition

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Includes: LNC, MFC, PFG
by: FP Trading Desk

Manulife Financial Corp. (NYSE:MFC) could be the next Canadian financial services company to spend its sky-high loonies on a deal in the U.S., said RBC Dominion Securities Inc. analyst Andre-Philippe Hardy.

Manulife is well positioned to make an acquisition because it has more than C$3-billion in capital available to spend, because of the soaring Canadian dollar, and because a purchase could lead to significant synergies with the insurer’s existing U.S. business, Mr. Hardy said in a note to clients.

Also, the Canadian company’s stock is currently trading at a 19% premium to some U.S. rivals, compared to a 6% premium in June this year, making any deal relatively cheaper, he added.

A big acquisition would follow Toronto-Dominion Bank’s (NYSE:TD) splashy $8.5-billion purchase of Commerce Bancorp (NYSE:CBH), which was also helped by the strong loonie.

If Manulife does look to buy, possible targets include Lincoln National Corp. (NYSE:LNC) and Principal Financial Group Inc. (NYSE:PFG), said Mr.Hardy. Both companies would add scale to Manulife’s U.S. mutual fund operations, improve the company’s U.S. insurance and variable annuities businesses, and help Manulife expand into the U.S. Group life and health sector, he said.

A deal for either Lincoln or Principal could add 2% to 13% to Manulife’s earnings in two years, by Mr.Hardy’s calculations. Manulife is the RBC analyst’s sector top pick.