Sun Life Assurance Co. of Canada has dramatically slashed an already low estimate of how much it will be worth when it goes public late next month, in the wake of sagging insurance-stock prices and its own peculiar problems.
The Toronto company, the last of a string of five Canadian life insurers to demutualize or go public, said yesterday it now expects that the initial public offering (IPO) price for its stock will range from just $12 to $15 a share, compared with an initial estimate, disclosed last October, of $14 to $21.
The new valuation translates to multiples of only 0.85-times to 1.06-times Sun Life's book value. This is well below the 1.4-times book value that Toronto-based Manulife Financial Corp. -- much more profitable than Sun Life in the past two years -- achieved in its IPO last September, despite having to price its shares at the bottom of a reduced valuation range.
With a total of about 400 million shares to be issued to Sun Life's one-million-plus voting policy holders and, through the IPO, to outside investors, this would give Sun Life an initial market capitalization of only $4.8-billion to $6-billion, compared with $5.6-billion to $8.4-billion at the October valuation.
The 143.5-million-share IPO itself will raise $1.72-billion to $2.15-billion at the new price range.
"It's principally that the U.S. market for life insurance [stocks]has declined, and we're a multinational company and we have to be conscious of the market in countries where we want to sell stock," Sun Life senior vice-president Michael Hasley said of the lower valuation.
He cited the stock performance of several comparable U.S. insurers, saying their shares had fallen between 23 per cent and 33 per cent from September to last Friday.
Mr. Hasley said Sun Life is not considering delaying the IPO in the hope of achieving a better price down the road.
At the mid-point, the new range is 23 per cent below the October valuation.
Analysts concurred with Sun Life's explanation. However, one said the new valuation also reflects the company's continued exposure to both an industry-wide pension-sales scandal in Britain, for which it has had to set up hundreds of millions of dollars in reserves, and to a U.S. reinsurance debacle on which it took a $150-million, after-tax hit against fourth-quarter profit.
Both Sun Life valuations were done by investment dealers Morgan Stanley & Co. of New York and RBC Dominion Securities Inc. of Toronto, lead underwriters for Sun Life's IPO. The issue is to be marketed in a roadshow set to start next Monday and priced March 22.
Under Canadian rules, demutualizing insurers must distribute their entire value to voting policy holders, in the form of shares or cash.
As with the other companies, Sun Life will use its IPO to raise the funds it needs to pay those policy holders who opt to, or are required to receive their portion of the windfall in cash. It will do so by selling to institutional investors the shares these policy holders would otherwise have received.
Mr. Hasley said yesterday that 38 per cent of Sun Life's eligible policy holders are taking cash, and that their portion of the pie represents about 36 per cent of the total.
The company has said that on average, eligible customers will get about 378 shares or cash of equal value. At the new price valuation, this would be worth $4,536 to $5,670 apiece, compared with $5,292 to $7,938 at $14-$21 a share.