The Canadian insurer is interviewing at least four potential partners for its MFS Investment Management unit, which suffers from high costs, poor performance and a lack of stock market respect.

Sun Life chief executive officer Donald Stewart is looking at vending all of MFS for a smaller stake in a much larger firm after weighing the option of selling a portion of the Boston-based company in an initial public offering, and simply keeping control of MFS and trying to fix it.

"Sun Life is getting all sorts of interest in a deal, but whether Stewart is willing to pull the trigger is another question," said one investment banker working for a possible partner.

MFS's profitability and fund performance lag its peers, and in the past, Sun Life executives have expressed frustration with the perceived lack of premium that investors ascribe to the U.S. unit. Sources say Mr. Stewart's preferred method of fixing MFS is merging the firm with a rival of similar or larger size, and taking a minority stake, perhaps one-third, of the new entity.

There are precedents for this structure. Sun Life owns 35-per-cent of CI Financial, the income trust that is one of Canada's biggest mutual funds company, and 56-per-cent of McLean Budden, one of Canada's largest institutional money managers. And in the consolidating U.S. industry, Citigroup Inc. merged its funds with Legg Mason Inc. and Merrill Lynch & Co. Inc. tied up with BlackRock Inc. to create industry leaders.

If Sun Life can get to the altar, analysts see the insurer's stock soaring. Robert Wessel at National Bank Financial said in a recent report that the right merger would boost Sun Life's shares 14 per cent. "We believe a combination would be Sun Life's preferred option for MFS, since it offers the greatest potential strategic and financial benefits," he said.

There are internal steps MFS can take to boost profitability, including cutting compensation, outsourcing administration and moving to less expensive office space. National Bank Financial's Mr. Wessel estimates that if MFS could simply match its peers on profitability, Sun Life's share price would rise by up to $2.50 (Canadian). The stock closed yesterday at $44.60 on the Toronto Stock Exchange, down 5 cents.

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