AXA in The AMP's Sights: More To Come

  Last week it was a & #36;6.8 billion joint bid for Transurban, the big toll road operator, from two large Canadian pension managers that made local investors sit up and think about further takeover moves.Yesterday a similar deal, this time in funds management (which is a form of financial infrastructure), an area that surprised analysts, with AXA Asia Pacific knocking back a joint approach from its French parent and the AMP worth some & #36;11.2 billion.AXA Asia Pacific said & #160;in a statement & #160;it had received the unsolicited and conditional scheme proposal from AMP and AXA SA last Saturday morning, November 7, and rejected it.The reaction in the local market told it all about who would be the winner: AXA Asia Pacific shares jumped more than 32% to & #36;5.70, a rise of & #36;1.40.AMP shares opened down and fell 20 cents to around & #36;5.67, before rising in the afternoon to close up 25 cents at & #36;6.12.The AMP's share price did better as the results of its market briefings with analysts percolated through.But so far the gains are with the local shareholders in AXA Asia.The share and cash offer implied a bid of & #36;5.43 per AXA Asia Pacific share, valuing the target firm at & #36;11.2 billion, based on AMP's closing share price on Friday of & #36;5.87.AMP is offering 0.6896 of its own shares plus & #36;1.3796 in cash for each AXA Asia Pacific share. & #160;With the local sharemarket up strongly since March and Asian markets also booming (a big area of growth for AXA), the joint approach has some logic.But you'd be right to think it should have come much earlier in the year when AXA's share price was much lower, down under & #36;3, & #160;compared with & #160;the & #36;5.70 closing price yesterday.The answer why the bid didn't come much earlier is that the share prices of the AMP and AXA SA, the Paris-based parent of Axa Asia Pacific, were also much lower.In fact the French parent was one of those big European financial groups hit hard by the credit crunch because of its size and spread of business across Europe and into the US.It did support the & #36;700 million recapitalisation of AXA Asia earlier this year with the share issued at & #36;2.85, which will give the shareholders who took it up, a nice profit if the bid happens.The board of AXA Asia Pacific rejected the & #160;break-up plan that would have left the Australian assets with & #160;AMP & #160;and its Asian assets with French parent AXA.The French parent has coveted the growth assets in Asia & #160;and tried to takeover the local arm a few years ago, but was rejected.Under the plan proposed by AMP and & #160;AXA SA, AMP would buy all of the shares in AXA Asia Pacific, including the parent's 51% stake, and then sell AXA Asia Pacific's Asian assets back to the French parent for an undisclosed price.In a statement to the ASX, AXA Asia's chairman Rick Allert said the proposal & quot;significantly undervalued & quot; the company. & quot;The proposal has been received against the backdrop of recent weakness in global financial markets and before the growth of our Asian operations is fully reflected in our profitability. & quot;AXA APH is a strong business with outstanding prospects. AXA APH has an impressive standalone growth profile, with an enviable position in Asia delivering strong growth, and an Australian and New Zealand business that is well positioned to take advantage of the recovery in markets and to respond to the anticipated future regulatory changes & quot;, Mr Allert said.But he left the door open for the plan, saying the company would consider a better takeover offer, just as Transurban has left the door open for its would suitors to approach with a high offer. & quot;The value of the offer was uncertain and varied with any movement in the AMP share price and the Australian dollar / US dollar exchange rate. & quot;Based on the closing AMP share price and the Australian dollar / US dollar exchange rate on Thursday 5 November 2009, being the date cited in the proposal, the implied value of the offer to AXA APH minority shareholders was approximately A & #36;5.34 per AXA APH share, or A & #36;5.17 per AXA APH share assuming the minimum cash component. & quot;The proposal was subject to a significant number of material conditions including extensive due diligence by a competitor and numerous regulatory approvals, & quot; the company said.The key to the bid is the Asian business.The French parent wants that, and without its offer to buy the Asian business & #160;from AMP, the latter cannot afford the takeover on its own.The AMP has a market cap of just over & #36;12.1 billion, so an offer of this size would effectively double the company and force it to raise fresh capital.But the company said yesterday that with the AXA SA deal, it would not need any fresh capital (meaning that without it, the deal won't happen).AXA SA is reported to be raising more than & #36;A3.0 billion in fresh capital in Europe overnight.Investors should keep an eye on the attitude of the financial regulator, APRA, to the proposal.The AMP and AXA Asia Pacific are both regulated financial entities (Authorised Deposit Taking Institutions) and any completed deal will need APRA's approval.The AXA Asia board recognises that its Asian business is the real reason for the deal. & quot;AXA APH's substantial Asian footprint, covering Hong Kong, China, India, Thailand, Philippines, Indonesia, Singapore and Malaysia, provides two thirds of AXA APH's operating earnings. & quot; & quot;These markets are characterised by high savings rates, low life insurance penetration, favourable demographics, emerging national savings systems and economies growing faster than the global average. & quot;It is impossible to replicate this footprint due to the high barriers to entry, established relationships and the breadth of the operations. - AXA APH's growth in the Asian region is not yet fully reflected in its profitability. & quot;Australia is such a huge market now for funds management, with more than & #36;US1.1 trillion in superannuation, even after the losses of the last two years.That's the prize the AMP wants. & #160;  

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