updated 9/28/2003 1:46:27 PM ET 2003-09-28T17:46:27

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

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Under the terms of the deal, John Hancock shareholders will receive 1.1853 Manulife common shares for each John Hancock share.

The combined entity will earn cost savings of $255 million after three years and will boost Manulife’s net income from next year, it said.

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

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.

Manulife’s D’Alessandro will be president and chief executive officer of the combined entity, which is valued at $25.6 billion (C$34.7 billion.) Hancock’s D’Alessandro will become chief operating officer and president of Manulife when the deal is completed.

Once Canada’s No.1 insurer, Manulife 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 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.

Copyright 2012 Thomson Reuters. Click for restrictions.

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