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Officials say Hancock, Prudential eyed merger

In its continuing search for a partner, John Hancock Financial Services Inc. spent the past eight months in merger discussions with Prudential Financial Inc. in a deal that would have created the largest insurance company in America, according to three executives familiar with the talks. Those negotiations broke down this month.

The deal would have meant the acquisition of Boston's biggest life insurer by the much-larger Prudential, which is based in Newark, N.J. But under the terms of the deal being discussed, Prudential would have moved its domestic insurance operations to Boston, and Hancock's senior management would have remained in place, the executives said.

Arthur F. Ryan, Prudential's 60-year-old chairman and chief executive, would have headed the combined company, with Hancock's chief executive, David D'Alessandro, 52, assuming the titles of president and chief operating officer, these executives said. D'Alessandro would have been in line to become chief executive within two years, they said.

The merger failed over a range of cultural and business issues, including where job losses would come, these executives said. The sale would have been a stock transaction, but price was never discussed in detail, the executives said.

Both companies declined to comment. "We don't comment on rumors in the marketplace," a Prudential spokeswoman, Laurita Warner, said.

"We don't comment on speculation concerning transactions," a Hancock spokesman, Stephen Burgay, said.

The talks are the latest evidence of Hancock's search for a merger partner. The Prudential negotiations were proceeding even as Hancock was investigating a possible combination with FleetBoston Financial Corp., New England's largest bank. Those merger discussions, first reported in The Boston Globe last month, were an effort to fashion a hometown financial services giant that could fend off an acquirer from outside the region, but failed over fears that the proposed combination could have made one or both companies targets of hostile takeovers before they completed any deal.

Prudential's acquisition of Hancock would have been a far more traditional combination of two insurers. Prudential is the second largest US life insurer, with a market value of $18 billion and 54,000 employees worldwide. Hancock is the fourth largest US life insurer, with a market value of $8.8 billion and 9,700 employees. Both are former mutual companies - meaning they were owned by policyholders - that went public in the past three years.

Prudential's stock has risen 20 percent to $32.98 since its public offering in December 2001; Hancock's stock is up 80 percent since its IPO in January 2000. Both stocks have struggled more recently: Hancock's shares are down 9.4 percent in the past year; Prudential's shares are up 2 percent.

The combination would have created the largest life insurance company in the country by sales, surpassing MetLife Inc.

D'Alessandro has made no secret of his interest in selling Hancock to the right bidder. He has said often that he believes that Hancock is too small to play in a world dominated by much larger competitors like MetLife, Prudential, American International Group Inc., and larger European financial services companies, and wanted a chance to pick his partner before the stock market revived the takeover market. Among his priorities, he has said, are preserving jobs in Boston and Hancock's identity in the city.

Hancock has been hurt in recent months by losses in its fixed-income portfolios. Last month Hancock said it would lose as much as $750 million on investments this year because of write-offs from airlines, power, and agricultural bonds and other securities.

The losses were balanced in part by the $910 million sale of its landmark Boston headquarters and two other buildings.

Investment banker Goldman Sachs represented Hancock in its talks with Prudential. Prudential was represented by Morgan Stanley.

A Hancock acquisition would fit with Ryan's plans to refocus Prudential on its core life insurance and annuities businesses. Last month Prudential announced the sale of its auto and homeowners insurance units for $673 million. In February, Prudential sold most of its money-losing securities business to Wachovia Corp. In all, Prudential freed up $1 billion in capital, which analysts expected to be used for acquisitions, to buy back stock or boost the dividend.

Steve Bailey can be reached at bailey@globe.com. Steven Syre can be reached at syre@globe.com.

Hancock sold

(Globe Staff Graphic / John Bohn)
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