If anything, French
insurer Axa must be given credit for tenacity when it comes to
wanting full control of Axa Asia Pacific’s operations outside of
Australasia. After being foiled in its attempts for many years by
hindrances including intransigent directors and obstinate
regulators, Axa now appears set to get its way.
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After a series of
failures, French insurer Axa’s quest to gain full control of Axa
Asia Pacific Holdings’ (AAPH) non-Australasian operations appears
to be heading for success. This follows a unanimous approval by
AAPH’s six independent directors of a scheme of arrangement
proposals under which Australian wealth management and insurance
company AMP Limited would gain full control of AAPH’s Australian
and New Zealand operations, and Axa full control of AAPH’s Asian
operations.
Under the proposal, AMP would
acquire 100% of AAPH’s outstanding shares for A$13.3bn ($12.8bn).
AMP would buy Axa 54% stake in AAPH for A$7.2bn in cash and, in
turn, Axa would acquire from AMP 100% of AAPH’s Asian operations
for A$9.8bn in cash, thus valuing AAPH’s Australia and New Zealand
businesses at A$3.5bn. In addition, Axa would subscribe A$600m of
subordinated debt issued by AMP.
Fourth
attempt
If the proposal is accepted,
it will be a case of fourth time lucky for Axa following a series
of abortive attempts to achieve what the latest proposal aims to
do.
The French insurer made its
first unsuccessful attempt to buy-out APH minorities in 2004, nine
years after acquiring 51% stake in APH, then National Mutual. Five
years elapsed before the next attempt, which came in early-November
2009, when AMP proposed a deal, valuing AAPH at A$11bn. AAPH’s
independent directors rejected the proposal out of hand.
On 14 December 2009, AMP
submitted a revised proposal, upping its offer to
A$12.85bn. This was also rejected by AAPH. Then on 17 December
2009, AMP found itself out-gunned by an offer from National
Australia Bank (NAB) of A$13.3bn, which AAPH’s independent
directors recommended to shareholders.
In the next setback – which
Axa and AMP will be hoping was the last – the Australian
Competition and Consumer Commission declared in a ruling that it
would oppose a deal under which National Australia Bank’s would
acquire full control of AAPH for A$13.3bn ($12.3bn).
For AMP, the deal would
consolidate its position in Australia’s wealth management market
where AMP CEO Craig Dunn said it would create a combined group with
2900 aligned financial planners and 6500 independent financial
advisers.
According to Australian
actuarial and research firm Plan For Life (PFL), AMP recorded
premium income of A$11.44bn in the 12 months to June 2010, giving
it a market share of 30.5% and ranking it as the country’s leading
insurer. AAPH’s Australian unit, Axa Australia Group, recorded
premium income of A$1.97bn, giving it a market share of 5.3% and
ranking it fifth.
Axa’s big
prize
For Axa, the big prize is
AAPH’s operations in Asia where it has businesses in Hong Kong –
home to by far the biggest of AAPH’s Asian units – China, India,
Thailand, Philippines, Indonesia, Singapore and Malaysia. AAPH’s
Asian operations are the largest portion of its business and in the
first half of 2010 contributed operating earnings of A$160.7m,
59.5% of total operating earnings which increased by 6% to
A$270.3m.
Asian operating earnings were
impacted by currency movements in the first half of 2010, falling
4% compared with the first half of 2009. In the first half of 2010,
Australia contributed A$93.6m of total operating earnings (+ 25%)
and New Zealand A$16m (+ 22%).
Of total Asian operating
earnings in the first half of 2010, Hong Kong contributed HK$978m
(A$131m), an increase of only 1% compared with the same period in
2009, while currency movement resulted in Hong Kong’s contribution
to AAPH’s operating earnings falling by 25% in Australian dollar
terms.
In part, the low increase in
its Hong Kong unit’s operating earnings in local currency reflected
investment costs incurred to support future growth, noted AAPH. The
value of new business generated in Hong Kong was up 13% at
HK$630m.
Notably, on a constant
currency basis, Asian operating earnings in the first half of 2010
were up by a far more healthy 19%, reported AAPH.
In its South East Asia
operations, AAPH reported that its share of operating earnings
increased by 90% to A$33m, reflecting the growth in the
profitability of these businesses flowing from benefits of
increasing scale. In India and China, AAPH’s investment produced a
loss of A$9.4m, down from a loss of more than A$19m in the first
half of 2009. AAPH noted that the lower loss mainly reflected its
lower economic interest in its Indian joint venture.
AAPH’s Asian operations’ new
business performance the first half of 2010 was robust, with AAPH
reporting a 16% increase in the value of new business compared with
the first half of 2009 to A$558m. On an annualised premium
equivalent (APE) basis, total premium income of its Asian units
increased by 10% to A$3.6bn.
Indicating an even stronger performance in the third
quarter of 2010, AAPH reported that new business on an APE basis in
the first nine months of 2010 was up 37% compared to the same
period in 2009.
