National Australia Bank Ltd. (NAB) said Monday that it has
agreed to buy some of Aviva PLC's (AV.LN) Australian business for
A$825 million cash to expand and enhance its own wealth management
business.
The purchase is expected to add to earnings per share and return
on equity in its first full year after acquisition, excluding
estimated integration costs, the bank said in a statement.
Before completion, Aviva's Australia unit will pay a A$40
million dividend and will also pay a net asset adjustment of A$60
million after the deal is completed, taking total proceeds for
Aviva to A$925 million, the largest U.K. insurer by market
capitalization, said in a statement.
National Australia Bank is seeking to boost earnings from wealth
management and insurance to offset bad debts and slower loans
growth arising from the global credit crunch.
The bank will acquire all shares in Aviva Australia Holdings
Ltd., which includes Norwich Union life insurance, Navigator
investment platform operations and strategic stakes in four
independent financial advisory firms, but not Aviva's asset
management business or interest in PIH financial advisory business,
it said.
"This acquisition will enhance our offering in key wealth
management segments including insurance and investment platforms,
adding scale, efficiency and new capabilities to our operations,"
National Australia Bank Chief Executive Cameron Clyne said.
The transaction is at a price-to-embedded-value of 1.1 times at
Dec. 31 and at a price to earnings multiple below sector
comparables such as AMP Ltd., AXA Asia Pacific Holdings Ltd. and
Tower Australia Group, National Australia Bank said in presentation
notes.
The bank said its tier 1 ratio would fall by about 15 basis
points as a result of the transaction.
U.K. insurer Aviva said it sold the unit to focus on key growth
markets in Asia, including China and India, where it hopes to
achieve a leading position.
The transaction price represented 16 times 2008 net earnings, or
5% of Aviva's capitalization, for a business that accounted for
2.6% of the company's operating profit last fiscal year, Aviva Asia
Pacific Chief Executive Simon Machell told reporters on a
conference call.
"The rationale for the sale is simple. It was clear that growth
to a leading market position from the small base we had in
Australia would be challenging due to the competitive nature of the
market," he said.
Aviva currently ranks ninth in the Australian life insurance
market and its wealth management platform is ranked eighth, Machell
said.
"It would be more valuable in the hands of a larger, local
participant, particularly in a consolidating industry where scale
matters," he said.
"Australia is a good market in which to dispose of assets,"
Machell said, because it is "less affected by the global financial
crisis" with high interest in the business, the prospect of
receiving a good price for the assets, particularly with the
Australian dollar gaining against the British pound in recent
months.
The unit had earnings of A$60.7 million in the year to Dec. 31,
down 37% from A$96.2 million a year earlier.
Aviva will keep its asset management business in Australia to
capitalize on the growth of the country's pension fund market,
Machell said.
The acquisition is expected to generate total synergies of about
A$70 million a year before tax, with about A$50 million from cost
cutting and A$20 million from additional revenue, National
Australia Bank said.
"Given that it's quite hard to do anything in terms of
acquisitions in banking, (growing its) wealth management makes
sense but, in the scheme of things, it's a fairly small deal," said
a Melbourne-based analyst, who declined to be named. "It's not a
transformational deal. It serves both parties well."
"I'm surprised by the relative size of the integration costs of
A$125 million on a total of A$825 million," the analyst said. "It's
quite significant but it's a fairly small (transaction) and it
won't change our hold recommendation on the stock," the analyst
said.
The Aviva businesses had about 350,000 customers at Dec. 31.
Australian newspapers had reported that National Australia had
been in a battle with others, including AMP, Tower and Macquarie
Group to buy the business.
Machell said that four companies made it into the final round.
He declined to identify the other bidders.
The sale is subject to regulatory approvals and is expected to
be completed during the fourth quarter of 2009, National Australia
Bank said.
Morgan Stanley and JPMorgan Chase & Co. managed the
sale.
-By Andrew Harrison, Dow Jones Newswires; 61-3-9292-2095;
andrew.harrison@dowjones.com
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