Axa’s Asian growth strategy, a deal that would have
given it full control of Axa Asia Pacific’s
non-Australasian operations, has been dealt a death-blow by
Australia’s competition commission. However, the door is open for
Australia’s largest life insurer, AMP, to renew a bid for its
Australian rival.

 

Table showing Axa Asia Pacific, news business, 2008vs2009Axa’s goal of gaining full
control of Axa Asia Pacific Holdings’ (APH) non-Australasian
operations has been dealt its second blow, this time by the
Australian Competition and Consumer Commission (ACCC).

In a ruling, the ACCC declared it
would oppose a deal under which National Australia Bank (NAB) would
acquire full control of APH for A$13.3bn ($12.3bn). Axa’s share of
the proceeds for its 54% stake in APH would have been A$7.2bn, to
which it was planned to add A$2.2bn in cash to acquire APH’s
operations outside of Australia and New Zealand from NAB.

APH has units in Hong Kong, China,
India, Thailand, Philippines, Indonesia, Singapore and
Malaysia.

The French insurer’s first setback
came when APH’s Independent Board Committee rejected out of hand a
similarly structured proposal from Australian insurer AMP in
early-November 2009. AMP’s offer valued APH at A$11bn.

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On 14 December 2009, AMP submitted
a revised proposal, upping its offer to A$12.85bn.

This was also rejected by APH. On
17 December of the same year, AMP found itself out-gunned by NAB’s
A$13.3bn offer, which APH’s Independent Board Committee recommended
shareholders accept.

In rejecting NAB’s acquisition of
APH, ACCC chairman Graeme Samuel explained: “At the heart of the
ACCC’s decisions are concerns about innovation, and as a
consequence future rigorous and effective competition between
retail investment platforms.”

The ACCC found that NAB and APH are
significant competitors in provision of retail investment
platforms. The ACCC also noted that APH is about to launch a
platform likely to provide “aggressive competition for investors
with complex investment requirements”.

 

Door still
open

Table showing Axa Asia Pacific, operating earnings, 2008vs2009Given a merger
between APH and NAB, the ACCC believes entry of new competitors
into Australia’s retail investment platform sector would be
unlikely because of a high barrier to entry the merger would
create.

Axa’s ambition to gain full control
of APH’s non-Australasian operations has not been dealt a complete
death-blow. In its adjudication the ACCC ruled that a merger
between AMP and Axa would not be detrimental to competition in
Australia’s financial markets despite its leading position in the
life market.

In the 12 months to September 2009,
AMP recorded premium income of A$9.59bn, according to actuarial
firm Plan For Life.

This gave it a market share of
28.3%, ranking it number one in Australia’s life industry. Second
was NAB with premium income of A$7.08bn and a 20.9% market share.
APH ranked fourth with premium income of A$2.15bn and a 6.3% market
share.

Indicating it may make a fresh
offer for APH, AMP said in a statement: “AMP continues to believe
it can put forward a proposal that is financially disciplined and
will create value for its shareholders, and which the independent
directors of Axa will be able to recommend to their minority
shareholders.”

For Axa, a deal would represent
realisation of a long-held ambition to gain control of APH. 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.

Representing almost two thirds of
new business, APH’s non-Australasian operations performed well in
the first quarter of 2010, recording new business of A$289m, up 57%
compared with the first quarter of 2009 on a constant currency
basis.

 

Asian units perform
well

Strongest growth was registered by
APH’s units in Thailand, the Philippines, Indonesia, Malaysia and
Singapore where total sales increased by 92% to A$146m. Close
behind was APH’s Chinese joint venture (JV), Axa-Minmetals, which
recorded an 85% increase in sales to A$15m.

APH has a 25% stake in
Axa-Minmetals together with Chinese state-controlled metals and
minerals trading company Minmetals (45%) and Axa (25%).
Axa-Minmetals was established in 1999.

In India, APH’s JV, Bharti Axa Life
recorded a 13% increase in sales to A$36m in the first quarter of
2010. APH has a 26% stake in Bharti Axa Life and Indian
conglomerate Bharti Enterprises a 74% stake. Bharti Axa Life was
launched in August 2006 and ranked as India’s 13th largest private
insurer based on premium income in the eight months to November
2009.

APH’s largest non-Australasian
unit, composite insurer Axa Hong Kong, recorded a 17% increase in
new business to A$90m in the first quarter of 2010. Wholly-owned,
Axa Hong Kong (formerly Winterthur Life Hong Kong) was acquired
from Axa by APH in 2007 following Axa’s acquisition of Swiss
insurer Winterthur in 2006.

Contrasting with strong growth in
its Asian operations, APH’s Australian and New Zealand units
produced mixed results in the first quarter of 2010.

Performing well, protection
insurance sales in Australia increased by 12% to A$23m while in New
Zealand a 19% increase to A$6m was reported. But wealth management
inflows were subdued, rising 2% to A$bn in Australia and by 5% in
New Zealand to A$345m.

Far stronger growth was recorded by
Alliance Bernstein Australia (ABA) where wealth management inflows
were up 41% to A$2.2bn. ABA is a 50:50 JV between APH and US-based
Alliance Bernstein in which Axa has a 64% stake.

Overall, APH reported that total
group funds under management, administration and advice remained
stable in the first quarter of 2010 at A$80.7bn. This includes
assets of about A$17bn managed by Ipac Securities acquired by APH
in 2002.

 

More to come

It seems unlikely this will be
Axa’s last attempt to gain full control of APH’s non-Australasian
operations, given the reshaping of Asia’s insurance market now
underway. Of particular significance are American International
Group’s sales of its Asian subsidiary AIA Group to UK insurer
Prudential for $35.5bn and American Life Insurance Company to US
insurer (ALICO) to US insurer MetLife for $15.5bn.

AIA will give Prudential the
leading positions in five of APH’s markets, Hong Kong, the
Philippines, Indonesia, Malaysia, Singapore, as well as Thailand
and Vietnam. For MetLife ALICO boosts it into the position of top
foreign insurer in Japan as well as providing it prominence in
Europe and Latin America.

Highlighting the significance of its goal of striking a deal,
Axa management board chairman Henri de Castries said at the time of
APH’s first offer: “This transaction would reinforce Axa’s growth
profile by doubling its exposure to the Asian life and savings
market.”