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Sun Life Closes CIMB Aviva Deal

Zacks Equity Research

Last week, Sun Life Financial Inc. (SLF) in association with Khazanah Nasional Berhad (Khazanah) acquired a Malayasian life insurance company – CIMB Aviva Assurance Berhad and a Malayasian takaful company – CIMB Aviva Takaful Berhad (taken together as 'the Company'). To expand its global footprint, Sun Life previously announced the deal in Jan 2013 though pending regulatory approval in Malaysia and Canada.

As per the deal, Sun Life and Khazanah each acquired 49% stake in the Company from the parent companies, Aviva International Holdings Limited and CIMB group Holdings Limited (CIMB Group) respectively. The remaining 2% is retained by CIMB Group. The new owners will rebrand the company once it is rechristened after the necessary regulatory approvals.

Sun Life Financial as well as Khazanah each paid RM900 million (C$301 million) for the deal bringing the total purchase consideration to 1.8 billion Malaysian Ringgit (C$602 million). We view the financial position of Sun Life to be strong enough to support this transaction and come up with more such deals in future. As of Dec 31, 2012 the cash and cash equivalents of Sun Life stood at $7.6 billion.

With the agreement, Sun Life Financial will obtain instant access to millions of customers of CIMB Bank. Presently the bank has a network of 312 branches and serves approximately 8 million customers. The agreement will give an exclusive right of distributing insurance as well as access to takaful products across Malaysia to Sun Life. Takaful is a Shariah-compliant alternative to an insurance scheme.

The partnership with Khazanah and the subsequent acquisition of the Company will expand the product portfolio of Sun Life. SLF will now be able provide an extensive choice to its Malaysian clients who aim for long-term financial security. In turn this is expected to strengthen the client base and improve revenues.  

SLF Asia generated 7.7% of consolidated operating earnings in 2012. The acquisition is expected to enhance the contribution of the segment in Sun Life’s operating earnings going forward. Management plans to drive 12.5% of consolidated operating earnings from Sun Life Asia by 2015.

Sun Life currently carries a Zacks Rank #3 (Hold). Among others from the industry Lincoln National Corporation (LNC), Manulife Financial Corporation (MFC) and Protective Life (PL) carry a Zacks Rank  #2 (Buy) and appear impressive.

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