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May 14, 2010updated 13 Apr 2017 8:53am

Axa’s Asian ambitions suffer setback

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

By LII editorial

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.

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.”

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