Sun Life sells U.S. annuity business, shares drop

TORONTO (Reuters) - Sun Life Financial Inc will sell its U.S. annuity business for $1.35 billion to a firm connected to Guggenheim Partners in a deal that should reduce the exposure of the insurer's earnings to market swings and boost its cash levels.
While the deal could bring long-term benefits to Sun Life, whose earnings have been derailed by wild market swings during recent years, investors pulled the company's shares down by nearly 4 percent as the financial terms fell short of initial expectations.
"The stock's sort of correcting back because the deal isn't quite as big a windfall as I think the market was anticipating," said National Bank financial analyst Peter Routledge.
Delaware Life Holdings, owned by certain Guggenheim clients and shareholders, will rename itself Delaware Life Insurance Co following the cash purchase. Guggenheim will provide investment management services to the new company.
Sun Life, Canada's No. 3 insurer, said last year it would stop selling variable annuities and individual life products in the United States to focus more on group insurance and voluntary benefits.
Variable annuities - retirement products that guarantee the investor a minimum monthly payment - became a source of earnings volatility for Sun Life in the wake of the 2008 financial crisis. That is because low interest rates and Canadian accounting rules force insurers to take upfront losses on products that will not come due for years.
"The business makes money, but not enough," said Routledge.
Weak equity markets and low bond yields sent Sun Life's profit down 87.5 percent during the second quarter of 2012 and caused losses during the third and fourth quarters of 2011.
EARNINGS HIT
The deal will cut Sun Life's profit by 22 Canadian cents a share annually and reduce book value by C$950 million ($965 million), the company said in a statement. According to Thomson Reuters I/B/E/S, Sun Life was expected to earn C$2.53 a share on a net basis in 2013.
The deal has also prompted Sun Life to take a second look at its 2015 financial targets, which include a goal of C$2 billion in operating profit.
In an interview, Sun Life Chief Executive Dean Connor said he would update the market on the targets after the deal closes, which is expected during the second quarter next year.
"I'm not saying we will necessarily reduce them. I'm not saying we will necessarily leave them as they are, because we don't know yet," he said.
The deal is also expected to reduce the company's earnings sensitivity to equity markets by 50 percent and its sensitivity to interest rates by 35 percent, compared with estimates on September 30.
It will raise Sun Life's cash position to C$1.9 billion.
"Over time, we'll redeploy that cash to fund growth," said Connor. He said the growth could include acquisitions on the "smaller end of the spectrum."
Sun Life, which also owns U.S. asset manager MFS Investment Management, is targeting growth in its Asian business.
SHARES DOWN
Sun Life shares, which have outperformed its rivals with a 47 percent year-to-date rise coming into Monday's session, ended down 3.9 percent at C$26.74 on the Toronto Stock Exchange. Despite the strong rise this year, the stock still trades at less than half its all-time high set in 2007.
Robert Sedran, an analyst at CIBC World Markets, said in a research note that the earnings and book value reductions were worse than he had expected.
"Moreover, while the decline in the earnings sensitivity to market variables improves the risk-reward profile, we did not view those sensitivities as excessive to begin with," he said.
However, he said the deal will free up time and capital that would otherwise have been engaged in what is essentially a closed business, which is a positive.
Morgan Stanley & Co advised Sun Life on the transaction financials.
Law firm Debevoise & Plimpton LLP was legal adviser to Sun Life, while Skadden, Arps, Slate, Meagher & Flom advised Guggenheim Partners.

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FactSet forecasts second-quarter results largely below estimates, shares fall

(Reuters) - FactSet Research Systems Inc reported lower-than-expected first-quarter revenue, and the financial information provider forecast current-quarter results largely below estimates as banks and brokerages cut costs.
FactSet shares fell 5 percent before the bell on Tuesday.
The company, which provides data to portfolio managers, research analysts and investment bankers, forecast second-quarter earnings of $1.11 to $1.13 per share, on revenue of $212 million and $215 million.
Analysts on average were expecting earnings of $1.13 per share on revenue of $216.3 million, according to Thomson Reuters I/B/E/S.
FactSet's financial sector clients are cutting staff and trimming costs to cope with increased regulation and a struggling global economy.
In the United States, financial companies have announced plans to cut 28,000 jobs through the first nine months of this year, compared with 54,000 during the same period in 2011, according to executive placement firm Challenger, Gray & Christmas.
FactSet said its net income rose to $49.8 million, or $1.11 per share, in the first quarter, from $45.5 million, or 99 cents per share, a year earlier.
The company earned $1.22 cents per share, excluding items.
Revenue rose 7.5 percent to $211.1 million for the quarter ended November 30.
Analysts on average had expected earnings of $1.11 per share, on revenue of $212.3 million.
FactSet rival Thomson Reuters Corp, the owner of Reuters News, last month reported a 15 percent fall in operating profit for the quarter ended September 30, on declining revenue and higher costs in its division that serves the financial industry.
FactSet's shares closed at $96.39 on the New York Stock Exchange on Monday.

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News Corp files with U.S. regulators to split company

(Reuters) - Rupert Murdoch's News Corp formally applied to the U.S. Securities and Exchange Commission to separate its publishing and entertainment assets into two independent, publicly traded companies.
The new News Corp will comprise a range of newspaper brands, information and integrated marketing services, digital real estate services, book publishing, digital education, and sports programming and pay-TV distribution in Australia, the company said in a statement.
Robert Thomson, a close confidant of Murdoch and currently managing editor of the Wall Street Journal and editor in chief of its publisher Dow Jones & Co, will lead the new publishing company.
"The filing of the Form 10 is another important step forward in the evolution of our company and in the establishment of two independent global leaders in Fox Group and the new News Corporation," CEO Murdoch said.
A Form 10, also known as the general form for registration of securities, is one of the most basic sources of information about a publicly traded security.
News Corp said in June that it would separate its publishing and entertainment assets after shareholders pressed it to get rid of its troubled newspaper business.
A phone hacking scandal hit the company's British newspapers earlier this year, forcing it to drop its proposed purchase of pay-TV group BSkyB.
News Corp's film and television businesses currently include the 20th Century Fox film studio, Fox broadcasting network and Fox News channel.
The publishing division includes the HarperCollins book publisher, its education arm headed by former New York schools Chancellor Joel Klein, and newspapers including the Wall Street Journal, the Times of London, the Sun, the New York Post and the Australian.
Shares of the company closed at $25.42 on Thursday on the Nasdaq.

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GE to buy aviation unit of Italy's Avio for $4.3B

FAIRFIELD, Conn. (AP) — Industrial conglomerate General Electric plans to buy the aviation business of Italian manufacturer Avio for $4.3 billion to grow its jet propulsion business and strengthen its supply chain.
The Fairfield, Conn., company said Friday that it wants to build its supply chain as it ramps up engine production. The deal also gives GE a chance to offer Avio products outside the aviation industry, in power generation, oil and marine products.
GE will buy Avio S.p.A.'s aviation business from European private equity firm Cinven and the Italian aerospace group Finmeccanica.
Avio has supplied GE Aviation since 1984. The company, which is based in Turin, Italy, employs about 5,300 people. It makes aviation propulsion components and systems for civilian and military aircraft, including low-pressure turbine systems, accessory gearboxes, geared systems and combustors. Last year, its aviation business generated $2.4 billion in revenue, more than half of which was derived from components for GE and GE joint venture engines.
GE isn't buying Avio's space unit, which employs 800 people.

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Pinnacle to buy Ameristar Casinos for about $869M

LAS VEGAS (AP) — Pinnacle Entertainment is buying Ameristar Casinos for about $869 million, plus taking on its $1.9 billion in debt.
If approved by shareholders and regulators, the deal would more than double Pinnacle's casino and resort holdings to 17 in the United States.
Pinnacle will pay $26.50 for each share of Ameristar Casinos Inc. That's a 20 percent premium over the company's Thursday closing stock price of $22.07. The deal also includes $116 million in cash on hand as of Sept. 30.
The deal has been approved by the boards of both Las Vegas operators.
Pinnacle Entertainment Inc. says it expects the acquisition to result in cost savings of at least $40 million a year and boost the company's earnings after closing.

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Futures tumble on stalemate in Washington

NEW YORK (AP) — U.S. stock futures are moving sharply lower after GOP leaders unexpectedly postponed a vote on legislation that would raise taxes on wealthier Americans, bringing the country closer to the so-called fiscal cliff.
Dow Jones industrial futures are down 163 points to 13,104. The broader S&P futures have given up 19 points to 1,421.60. Nasdaq futures are down 34.50 points to 2,665.50.
House Speaker John Boehner conceded late Thursday that there were not enough votes from GOP lawmakers for his plan that would have allowed higher tax rates for loftier income ranges.
That went against a hardline pledge from House Republicans to prevent any such increase.
If no deal is reached, tax hikes will occur at the start of the year along with deep spending cuts, which could trigger a recession.

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Obama vows to press ahead on fiscal cliff solution

WASHINGTON (AP) — President Barack Obama says he'll press ahead with Congress in hopes of preventing across-the-board tax increases set to strike taxpayers Jan. 1 after House GOP leaders unexpectedly put off a vote on legislation calling for higher rates on million-dollar earners Thursday evening.
The measure "did not have sufficient support from our members to pass," House Speaker John Boehner, R-Ohio, conceded in a brief statement.
At the White House, Press Secretary Jay Carney said that Obama's "main priority is to ensure that taxes don't go up on 98 percent of Americans and 97 percent of small businesses," citing statistics associated with Obama's campaign promise to increase top tax rates on households earning more than $250,000 a year.
"The President will work with Congress to get this done and we are hopeful that we will be able to find a bipartisan solution quickly that protects the middle class and our economy," Carney said. Pointedly, the statement didn't say whether Obama would work with Boehner to revive stalled talks or turn first to the Democratic-controlled Senate to try to salvage the situation.
Boehner's attempt to tactically retreat from a longstanding promise to maintain Bush-era tax rates for all was designed to gain at least some leverage against Obama and Senate Democrats in the "fiscal cliff" endgame. Thursday's drama was a major personal defeat for the Speaker, who retains the respect and affection of his tea party-infused conference, but sometimes has great difficulty getting them to follow his leadership.
What Boehner called his "Plan B" was crafted to prevent tax increases set to kick in Jan. 1 on virtually every taxpayer. But it also would have provisions that would have let rates rise for those at the upper income range — a violation of long-standing Republican orthodoxy that triggered opposition inside the party.
The hope was that successful House action on the measure would force Senate Democrats to respond. But Senate Majority Leader Harry Reid, D-Nev., made is clear that Plan B would have been dead on arrival in the Senate.
"Speaker Boehner's plans are non-starters in the Senate," Reid said.
Boehner announced he would move to Plan B after testing the waters with fellow Republicans regarding a possible pact with Obama on tax increases of $1 trillion — including the breakthrough proposal on higher tax rates — and finding them not very receptive.
Thursday's events leave little time for Obama and bruised lawmakers to prevent across-the-board tax increases and deep spending cuts from taking effect with the new year. Economists say the combination threatens a return to recession for an economy that has been recovering slowly from the last one.
The House will not meet again until after Christmas, if then, and the Senate is expected to meet briefly on Friday, then not reconvene until next Thursday.
In his written statement, Boehner said the House has previously passed legislation to prevent all the tax increases from taking effect, and noted that earlier in the evening it had approved a measure to replace across-the-board spending cuts with "responsible" reductions.
In arguing for legislation with a million-dollar threshold for higher tax rates, Boehner said the president has called for legislation to protect 98 percent of the American people from a tax hike. "Well, today we're going to do better than that," he said of the measure that raises total taxes by slightly more than $300 billion over a decade. "Our bill would protect 99.81 percent of the American people from an increase in taxes."
Democrats said that by keeping tax rates unchanged below $1 million — Obama has offered a compromise $400,000 level — Republicans had turned the bill into a tax break for the wealthy. They also accused Republicans of crafting their measure to impose a tax increase on 11 million middle class families.
"This is a ploy, not a plan," said Rep. Sander Levin, D-Mich. He accused Republicans of being "deeply cynical," saying the legislation would scale back some education and child tax credits.
A companion bill on the evening's House agenda, meant to build GOP support for the tax bill, called for elimination of an estimated $97 billion in cuts to the Pentagon and certain domestic programs over a decade. It cleared the House on a partisan vote of 215-209 and is an updated version of legislation that passed a little more than six months ago.
Those cuts would be replaced with savings totaling $314 billion, achieved through increases in the amount federal employees contribute toward their pensions and through cuts in social programs such as food stamps and the health care law that Obama signed earlier in his term.
Ironically, the votes were set in motion earlier in the week, after Boehner and Obama had significantly narrowed their differences on a compromise to avoid the fiscal cliff.
Republican officials said that members of the GOP leadership had balked at the terms that were emerging. Democrats said Boehner's abrupt decision to shift to his Plan B — legislation drafted unilaterally by Republicans — reflected a calculation that he lacked support from his own rank and file to win the votes needed for the type of agreement he was negotiating with the president.
Asked at a news conference a few hours before the scheduled vote if that were so, Boehner avoided a direct answer. "Listen, the president knows that I've been able to keep my word on every agreement we've ever made," he said.
By any measure, the two bills in the House were far removed from the latest offers that officials said Obama and Boehner had tendered. And the two men don't seem to be that far apart.
Obama is now seeking $1.2 trillion in higher tax revenue, down from the $1.6 trillion he initially sought. He also has softened his demand for higher tax rates on household incomes so they would apply to incomes over $400,000 instead of the $250,000 he cited during his successful campaign for a new term.
He also has offered more than $800 billion in spending cuts over a decade, half of it from Medicare and Medicaid, $200 billion from farm and other benefit programs, $100 billion from defense and $100 billion from a broad swath of government accounts ranging from parks to transportation to education.
In a key concession to Republicans, the president also has agreed to slow the rise in cost-of-living increases in Social Security and other benefit programs, at a savings estimated at about $130 billion over a decade.
By contrast, Boehner's most recent offer allowed for about $940 billion in higher taxes over a decade, with higher rates for annual incomes over $1 million.

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Italian court overturns Google convictions

MILAN (AP) — An Italian appeals court has overturned the convictions of three Google executives who had been charged for a video on a Google site that showed a disabled teen being bullied.
Google called Friday's ruling "a total victory."
A lower court in 2010 held the executives criminally responsible for the posting of the video.
The verdict raised concerns that Internet platforms could be forced to police their content and put European privacy concerns in contrast with the freewheeling nature of the Internet.
Google said it removed the video in question within two hours of being notified by authorities.
The appellate ruling throws out the convictions against Google's global privacy counsel Peter Fleischer, its senior vice president and chief legal officer David Drummond and retired chief financial officer George Reyes.

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Nokia, RIM settle old disputes in new patent pact

HELSINKI (AP) — Nokia Corp. and Canadian smartphone rival Research In Motion have agreed on a new patent licensing pact which will end all existing litigation between the two struggling companies, the Finnish firm said Friday.
The agreement includes a "one-time payment and on-going payments, all from RIM to Nokia," Nokia said, but did not disclose "confidential" terms.
Last month, Nokia sued the Blackberry maker for breach of contract in Britain, the United States and Canada over cellular patents they agreed in 2003. RIM claimed the license — which covered patents on "standards-essential" technologies for mobile devices— should also have covered patents for non-essential parts, but the Arbitration Institute of Stockholm Chamber of Commerce ruled against RIM's claims.
Major manufacturers of phones and wireless equipment are increasingly turning to patent litigation as they jockey for an edge to expand their share of the rapidly growing smartphone market.
Nokia is among leading patent holders in the wireless industry. It has already received a $565 million royalty payment from Apple Inc. to settle long-standing patent disputes and filed claims in the United States and Germany alleging that products from HTC Corp. and Viewsonic Corp. infringe a number of its patents.
The company says it has invested €45 billion ($60 billion) during the last 20 years in research and development and has one of the wireless industry's largest IPR portfolios claiming some 10,000 patent families.
Nokia stock was down more than 2 percent at €3.09 in early afternoon trading in a depressed market in Helsinki.

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Steve Jobs' yacht caught up in payment spat

AMSTERDAM (AP) — The sleek, white superyacht Apple founder Steve Jobs commissioned before his death cannot leave the Netherlands just yet due to a payment dispute
Jobs collaborated on designing the 78.2-meter (256-foot) all-aluminum "Venus," which has a minimalist aesthetic, with French product designer Philippe Starck. Dutch newspaper Het Financieele Dagblad reported Friday that Starck hired a debt collection agency and got a summary legal order to keep the boat from leaving.
Port of Amsterdam spokesman Jeroen Ranzijn confirmed the boat has been in the harbor since Dec. 8, and won't leave until the civil dispute is resolved — possibly later Friday.
According to the paper, Starck had only been paid €6 million ($7.9 million) by Job's heirs, but believed he was owed €9 million. The boat cost €105 million.

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Making money: Renting in retirement, and more

R

enting in retirementOlder homeowners are often urged to sell their big family house and buy a smaller one. But for some, it might make more sense to rent, said Jeff Brown at The Street. "Clearly, this goes against the grain." But renting requires less cash up front than a purchase, which is appealing if you have "a special need" for extra cash or a "juicy investment opportunity." Renting also gives you flexibility if your health deteriorates and you need to move to an assisted-living facility. The rule of thumb: If there's a good chance you'll stay for 10 years, buy. If the odds favor moving in less than five years, rent. "Between five and 10 years, it's a tougher call and will hinge on a detailed look at the numbers."

The right portfolio mix Don't let issues like the fiscal cliff distract you when deciding how to divvy up your money between stocks and bonds, said Walter Updegrave at CNN Money. Focus instead on your "personal financial circumstances," including how long you're investing for, what other resources you have, and, "perhaps most important, how much risk you're comfortable taking." If you're likely to need the money in three years or so, stick with cash equivalents such as FDIC-insured money market accounts. As your time horizon expands, add some bonds and maybe some stocks. If you're investing for retirement, check out the ratio of stocks to bonds in "target-date retirement funds" for someone your age. But don't go for a "high-octane blend" if it "gives you agita every time the market heads south."

A strategy for capital gainsThe tax rate on long-term capital gains is almost guaranteed to increase from 15 percent to 20 percent next year for high-income investors. What to do? Sell your "long-term stock and mutual fund winners" before year-end and "buy the shares right back," said Bill Bischoff atMarketWatch. Think of the 2012 tax hit as an investment; the payoff is the savings you will reap from "having the gains taxed this year instead of later when rates are higher." Just be sure you hold on to any winners you repurchase for at least a year to avoid higher-taxed short-term capital gains. Granted, this plan isn't perfect. "Nobody knows what the long-term capital gains tax rate will be for next year and beyond." But odds are it'll be higher than it is now.

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ArcelorMittal takes $4.3 billion write-down on weak Europe

BRUSSELS (Reuters) - ArcelorMittal , the world's biggest steelmaker, is to write down the value of its European business by $4.3 billion, underscoring gloom about prospects for the region's recession-hit manufacturers.
The group, formed in 2006 when India-born Lakshmi Mittal's steel business bought European peer Arcelor for $33 billion, said on Friday demand had fallen about 8 percent in Europe this year and there was no sign of a quick recovery.
As a result, it will write down the goodwill - the value of intangible assets such as brands rather than physical assets such as machinery - of its European operations by 87 percent.
"It is negative, but it should not really be a big surprise that the book value of its European business was too high," said a London-based analyst who asked not to be named.
ArcelorMittal shares were down 2.7 percent at 12.85 euros at 8 a.m. ET, one of the biggest falls by a European blue-chip stock <.fteu3> and reversing gains made earlier this week.
Credit agency Fitch cut ArcelorMittal's long-term issuer default rating to BB+, just below investment grade, due to the challenging outlook for Western European steel markets in 2013.
The $500-billion-a-year steel industry, a gauge of the global economy, has slowed sharply this year as a moderation in China's economic growth has compounded weak demand from austerity-ravaged Europe.
The World Steel Association in October forecast steel demand would rise 2.1 percent in 2012, down from 6.2 percent in 2011. It had forecast 3.6 percent growth in April.
Last month, Moody's cut the company's senior unsecured notes to Ba1 from Baa3, joining Standard & Poor's in rating ArcelorMittal one notch below investment grade.
Other steelmakers are hurting too. Earlier this month, Germany group ThyssenKrupp posted a full-year net loss of 4.7 billion euros ($6.2 billion).
WEAK POINT
Europe is a particular weak point, as austerity drives aimed at tackling a sovereign debt crisis have cut demand for cars and construction - steel's largest markets. Euro zone manufacturing has contracted for 17 straight months.
ArcelorMittal, which makes about 6-7 percent of the world's steel, said demand in Europe had fallen 29 percent since 2007 when the financial crisis started.
It highlighted better trends in the United States where, it said, demand was up 8 percent this year and is now 10 percent lower than in 2007.
ArcelorMittal, whose output is more than double that of its nearest rival, has already announced the closure of blast furnaces in Belgium and France, with other operations temporarily idled due to overcapacity.
The write-down represents over a third of ArcelorMittal's overall goodwill of $12.5 billion as of end-2012. The group, around 40-percent owned by the Mittal family, took on $6.6 billion goodwill when it bought Arcelor.
It said the write-down would be a non-cash charge in fourth-quarter results and would not affect net debt or core profit.
Before the write-down, analysts had, on average, forecast the group would make $529.5 million net profit this year, and $7.1 billion core profit, according to StarMine.

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