Shares in Standard life surged more than 10 per cent this morning after the insurer announced surprise plans to sell its Canadian business to Manulife of Canada in a £2.2 billion deal.
Edinburgh-based Standard Life confirmed the sale in a statement to the stock exchange after Manulife had announced the deal overnight in Toronto.
Standard Life’s share price had gained 10.33 per cent or 39.9p to trade at 426p by 8.45am.
As part of the deal, Standard Life Investments, the group’s powerhouse investment management division, has agreed a sales deal with the Canadian insurer that looks set to treble the amount of assets it manages in the region on behalf of savers and investors.
David Nish, Standard Life’s chief executive, said that as a result of the sale his company would return £1.75 billion to shareholders in a payout that would be worth an estimated 73p a share. The payout is likely to be welcomed by Standard Life’s army of 1.3 million individual shareholders, many of whom have held shares in the insurer since it demutualised in 2006.
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Speaking to The Times last night, moments after Standard Life had revealed the sale, Mr Nish said that the deal represented very good value for the insurer: “This is an exceedingly good transaction. Manulife are getting a business that gives them the ability to really grow in their core market and in terms of forward multiples. That’s why we’re getting really good terms.
“Canada has been really good for us; it’s returned $1 billion of dividends to the group within the past four years, but we asked ourselves whether it might be worth more to another owner and this fits entirely within Standard Life’s group strategy.”
The price being paid by Manulife, which has a relationship on the asset management side with Standard Life, represents 1.9 times the book value of the Canada division. It is also equivalent to 19.3 times the division’s estimated after-tax operating profits this year, a price tag that is likely to be welcomed by analysts in the City today.
Standard Life has spent the past three years turning around its operations in Canada, which have been heavily capital-intensive and increasingly remote from its operations in Britain. Having completed the turnaround, Mr Nish said that Standard Life had canvassed interest among other potential owners and had jumped on the Manulife interest because of the generous price.
The consensus among City analysts over the value of the Canada division was about £1.5 billion, Mr Nish said, arguing that the insurer would create significant value for shareholders as a result of selling off the asset.
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Standard Life said last night that the planned capital return to shareholders after the Canada sale meant that it had handed back £3.5 billion, or 147p a share, to investors in the past four years. It also said that selling the Canada business would boost its earnings potential and would not get in the way of its ability to pay a progressively higher dividend in the future.
Standard Life has been in Canada for more than 180 years and the deal transforms the shape of the insurer, the third largest player in the British market. Its Canadian division manages C$52 billion (£29 billion) of assets and it made pre-tax operating profits of £69 million during the first half of the year.
Standard Life will brief City analysts today about the benefits of the deal. Its shares closed last night up 2¾p at 386p.