Manulife Financial Corp., Canada's third largest insurer, on Sunday said it agreed to buy U.S. life insurer John Hancock Financial Services Inc. for around $10.8 billion, expanding its operations in the United States.

The stock-swap deal vaults Manulife back into the top spot among Canadian insurers and makes it the second largest in North America and No.5 in the world.

Under the deal, John Hancock shareholders will receive 1.1853 Manulife common shares for each John Hancock share, pegging them at $37.60 or an 18.5 percent premium on Friday's share price. The Canadian firm will get John Hancock's Nova Scotia-based Maritime Life unit, giving its business in Eastern Canada a boost.

The combined entity will earn cost savings of $255 million after three years and will raise Manulife's net income by 6 cents a share, excluding one-time charges, for the last three quarters of 2004.

In 2005, the deal is expected to boost profits by 23 cents per share, Manulife said. The combined company would have net income of $1.4 billion and $246 billion in assets under management, based on 2002 figures.

Manulife spokeswoman Donna Morrison Lindell on Sunday said it was too early to talk about figures related to job losses.

"They will be looking at them as part of the integration and I hope that the majority of jobs will be taken care of through normal attrition and through normal business growth," she added."

The deal had been rumored for some time and resulted in heavy trading in the two companies' shares on Friday.

Manulife's D'Alessandro will be president and chief executive officer of the combined entity, which is valued at $25.6 billion. Hancock's D'Alessandro will become chief operating officer and president of Manulife when the deal is completed, slated for the second quarter of 2004.

Manulife Chief Executive Dominic D'Alessandro, who is not related to John Hancock CEO David D'Alessandro, has said in the past that Manulife is looking for acquisition opportunities in the United States.

Once Canada's No.1 insurer, Manulife had been forced to the sidelines over the past year as the Canadian insurance sector saw a heavy bout of consolidation.

First, Sun Life Financial Inc. snapped up Clarica Life Insurance Co., considered a plum among smaller Canadian insurers. Then Manulife attempted to buy Canada Life, but lost out to rival Great-West Lifeco.

Manulife had also reportedly held merger talks with Canadian Imperial Bank of Commerce last year, but a potential deal was said to be scotched by the government.

Manulife's deal will bring the curtains down on an institution founded 141 years ago by Albert Murdock and some Boston businessmen.

John Hancock, recently rumored to be up for sale, was demutualized and started to publicly trade in 2000.

As part of a recent restructuring, the company -- reported to be in separate talks with FleetBoston Financial Corp. and Prudential Financial Inc.earlier this year -- is selling its group life insurance business to MetLife.

John Hancock has also sold some of its home office real estate to Beacon Capital Partners.

"Not only is consolidation in our industry inevitable, but for companies of our size to compete and grow in the future, it is necessary," Hancock's D'Alessandro said in a statement.

Manulife shares fell C$1.35 to C$40.85 on the Toronto Stock Exchange on Friday. Shares of Boston, Massachusetts-based John Hancock jumped $2.25, or 7 percent, to $34.30 on the New York Stock Exchange amid speculation of a pending sale.

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