MELBOURNE (Dow Jones)--National Australia Bank Ltd. (NAB), the country's third-largest by market capitalization, Thursday unveiled a surprise US$11.9 billion (A$13.3 billion) bid for AXA Asia Pacific Holdings Ltd. (AXA.AU), upstaging a rival offer from Australia's second-largest funds manager, AMP Ltd. (AMP.AU).
After securing the support of AXA APH's independent directors, NAB must now convince AXA SA (AXA), which owns 53.9% of AXA Asia Pacific, to switch its support from AMP's proposal.
The acquisition of AXA APH would propel either AMP or NAB into clear market leading positions in the Australasian life insurance and wealth management sectors, and give them the largest network of financial advisers in Australia.
If NAB's offer is successful, the deal could encourage further consolidation in the industry with AMP likely to become a target along with other asset managers such as Challenger Financial Services Group Ltd. (CGF.AU) and IOOF Holdings Ltd. (IFL.AU), analysts say.
AXA APH Chairman Rick Allert said at a media briefing that other undisclosed parties had also expressed interest in the business since AMP's first proposal nearly six weeks ago, indicating that the battle for AXA APH may not be over.
"I'm not going to enter into discussions about how many, but I am saying there were others," said Allert.
Under both proposals, AXA SA would acquire the Asian operations of AXA APH for A$9.13 billion, helping it build its operations in the region, but only under the NAB proposal would all minority shareholders have the chance to take a full cash payment in return for their shares.
NAB's deal also values AXA APH's Australian and New Zealand wealth management businesses at A$4.61 billion, against the A$4.41 billion AMP is willing to pay under Monday's sweetened bid.
Allert said he is confident the greater value and certainty afforded under NAB's proposal would see it supported by at least the 75% of minority shareholders needed to approve the scheme.
"I've been in touch with...most of our major shareholders this week and that gives me confidence that this will go through," said Allert.
NAB is offering A$6.43 cash or a combination of 0.1745 NAB shares and A$1.59 cash for each share in AXA APH not owned by the French parent.
AMP and AXA SA Monday increased their rejected November offer for AXA APH to A$12.85 billion, offering 0.6896 AMP shares for each AXA APH share alongside an increased A$1.92 per share in cash. Based on Wednesday's closing AMP price, this offer valued AXA Asia Pacific shares at around A$6.13 each.
"The independent board committee has unanimously concluded that the NAB proposal is in the best interests of AXA APH minority shareholders and superior to the rejected AMP, AXA SA revised proposal, in both its value and terms," Allert said in a statement.
NAB Chief Executive Cameron Clyne said the acquisition of AXA APH is in line with the group's strategy of boosting exposure to the Australia and New Zealand wealth management sectors. In September, NAB completed its purchase of Aviva PLC's Australian wealth management operations and it also recently bought Goldman Sachs JBWere's private wealth business.
AXA SA has agreed to work exclusively with AMP on the AXA APH deal until Feb. 6. Only if AMP walks away from the deal would AXA be able to start working with NAB on a separate proposal before then. NAB is yet to hold any talks with AXA SA, Clyne said.
AMP, which said Monday its revised proposal was its "best and final", appears unlikely to easily roll over. In a statement, AMP said its exclusivity agreement with AXA SA gives it "time to carefully consider its position".
NAB says its offer stands until Feb. 16 or six weeks after any decision by AMP to end the exclusivity period.
"We need to carefully consider the announcement and will discuss it with AMP before we make any public statement," said a spokesman for AXA SA.
AXA APH is the only Australian financial-services firm with the majority of its business in Asia and has exposure to eight regional markets, which account for two-thirds of its earnings.
Prior to NAB making public its proposal, a number of investors in AXA APH had said they wanted AXA APH to accept AMP's bid and so are likely to back NAB's bid.
"With a full price on offer and Board support secured, NAB has done its homework and this proposal is highly likely to succeed," said the Royal Bank of Scotland's Sydney-based credit strategist, John Manning.
AMP's disciplined approach to acquisitions in recent years meant it was unlikely to try and raise its bid, he said.
"I would be surprised if AMP were to engage in a bidding war with NAB, whose pockets are exponentially deeper, particularly as NAB appears determined on this one," said Manning.
NAB said it would raise around A$1.5 billion through a rights issue to help fund the deal, once it completes formal due diligence on AXA APH and has the backing of AXA SA.
Daiwa Securities analyst Johan Vanderlugt said the deal makes long-term strategic sense to NAB but falls short in terms of shareholder value creation and synergy benefits.
"The deal would only be earnings per share accretive in year three and bring in full synergies of A$260 million by year five," he said. "Moreover, we see substantial integration risks and revenue attrition."
The pre-tax cost savings forecast by NAB compare with AMP's estimate of annual savings of A$120 million after tax under its proposal.
At 0445 GMT, AXA APH shares were up 13% at A$6.35 while AMP shares rallied 4.6% to A$6.37 amid some speculation it could become a target.
NAB said it doesn't expect the AXA APH deal would worry competition regulators but said the bank would discuss the proposal with the Australian Competition and Consumer Commission and with the government.
The competition watchdog said in a statement posted on its website Thursday that it is "monitoring" NAB's proposed acquisition of AXA APH. The proposal has not yet progressed to the ACCC's review stage.
A spokesman for Treasurer Wayne Swan wouldn't comment on the deal.
Read more...