Manulife stock issue sparks ire and frenzy
Investors reacted sharply and in great numbers Thursday to a move by Manulife Financial Corp., Canada’s largest insurance company, to raise $2.5 billion in a major stock issue.
On the Toronto Stock Exchange, Manulife was down $1.23, or 6.1 per cent, at $18.95 as frenzied trading saw almost 19.2 million shares change hands.
The firm’s stock has been under pressure for months after it cut its dividends in half earlier in the year.
But even savvy investors were caught by surprise by Wednesday’s decision, which Manulife admitted would be dilutive to shares but was praised by chief executive Donald Guloien as something that would build "the fortress level of capital necessary to buffer against more conservative economic scenarios."
That didn’t sit well with Stephen Jarislowsky of Jarislowsky Fraser Ltd., one of Manulife’s largest shareholders.
"I was terribly disappointed because I was left very much under the impression that the company, if they cut the dividend, would have fortress levels of capital and that the last thing they wanted to see was more share dilution," Jarislowsky said in an interview.
Under the bought-deal financing with underwriters, led by Scotia Capital Inc. and RBC Dominion Securities Inc., Manulife will issue about 132 million shares at $19 each.
Upon closing, Manulife subsidiary The Manufacturers Life Insurance Co. will have access to the highest level of capital since it became a public company, Manulife said.
The company said that funds raised will be used for general corporate purposes, which may include contributions of capital to its insurance business and other subsidiaries, as well as potential acquisitions.
The public offering, which will dilute Manulife’s current share capital of 1.61 billion shares by more than 8 per cent, was expected to close Nov. 30, although it was reportedly being taken up more slowly than expected on Thursday.