National Buys MLC to Create Immediate Financial and Strategic Benefits - 10 April 2000
National Australia Bank today announced it had agreed to acquire the MLC businesses from Lend Lease Corporation Limited for $4.56 billion cash. Before completion, which is not expected until after mid-June, Lend Lease will take a fully franked dividend of $50 million from MLC. The franking credits attached to the dividend are valued at $20 million.
The National and Lend Lease have also agreed to establish an ongoing relationship to explore a number of opportunities to work together in areas of mutual benefit.
MLC and the National's funds management business will be combined to create a global wealth management business with total funds under management in Australia of $52 billion.
Managing Director and Chief Executive Officer of the National, Frank Cicutto, said "This adds immediate value for shareholders of the National, and enhances our ability to offer the best tailored financial solutions to our advisors and customers.
"The outstanding features of this acquisition are the quality of the MLC business, the strong strategic fit with the National, and the global opportunity it creates.
Financial Impact
"The acquisition will be financed from internal resources and available debt facilities. No shares will be issued.
"Cash earnings per share increases by almost 3% on a proforma basis. The estimated internal rate of return on the acquisition exceeds the group's cost of capital.
"Following completion of the transaction our tier one capital ratio is estimated to be 6.7%. This leaves us in a comfortable position in relation to our desired tier one capital ratio of 6 to 6.5%.
"The acquisition increases total funds under management in Australia to $52 billion and total retail funds under management to $26 billion.
"Group wealth management operating profit increases from 4.2% to 10.5% of total operating profit (6.6% to 18.1% in Australia)."
A Quality Business
Mr Cicutto said MLC had developed an outstanding business that would benefit greatly from access to the National's distribution network.
"MLC has an attractive portfolio of brands and a strong business model which fits well with the National's existing business structure," he said.
"The business model focuses on developing tailored solutions for customers and distributors using a manager of managers approach, which is consistent with the National.
"This means customers get products built around the best performing managers and do not solely rely on the performance of an in-house manager. Distributors are provided with an integrated system for tailored delivery of best of breed products.
"MLC's distribution strategy, which is targeted towards high growth segments of the market, is similar to the National's existing retail focus on premium, private and small and medium business customer segments.
"MLC is the benchmark for the industry on costs and margin, and uses leading edge technology and systems.
"MLC have the most developed internet-enabled platform for advisors and customers. This, together with MLC's Your Prosperity and the National's internet banking and on-line trading, places us at the forefront in the delivery of on-line wealth management products.
"And MLC has a strong leadership team that has produced sustained performance over a long period."
Ideal Strategic Fit with the National
Mr Cicutto said MLC was a perfect strategic fit with the National.
"We employ the same business models: both companies have a strong retail focus; both are delivering tailored financial solutions, aiming to bring the best products to our clients whether we manufacture it or someone else does; and both are leaders in cost efficiency," he said.
"MLC and the National also have complementary products and distribution networks.
"The acquisition combines MLC's strength in wealth management with the National's strength in banking, to create a unique range of 'best of breed' products across the full spectrum of financial services.
"It also brings together MLC's large network of financial advisor relationships and the National's extensive branch and electronic banking network, to create a fully integrated and comprehensive distribution system.
Global Growth Opportunity
"The acquisition also opens up significant new growth opportunities in the UK and other offshore markets.
"The National has a substantial untapped premium customer base in the UK. MLC's manager of managers approach can be readily exported and used to tap into this customer base via our established branch and electronic distribution network.
"The National and MLC have conducted research which confirms the model's viability in UK but it needs a customer base and distribution, which the National delivers.
"MLC has a growing presence in key Asian markets including Hong Kong and Indonesia. This provides a solid foundation in the rapidly expanding Asian wealth management market for the National.
Delivers Immediate Benefits
"The compatibility means the integration of the National's wealth management operations with MLC is a low risk proposition. It provides immediate scale and capability for the National, and growth opportunities in Australia and the UK for MLC.
"MLC will become the wealth management specialist within the National group, providing an immediate boost to the National's existing retail wealth management operations.
"This will provide the National with scale, and one of the highest quality third party distribution networks in Australia. MLC gains access to the National's nine million customers worldwide and the most effective branch-based distribution network in Australia and New Zealand.
"The National provides MLC with direct access to its extensive small and medium business customer base, who will be key users of superannuation member choice, the fastest growing area of the market place. MLC's Plum joint venture provides the National with a best of breed corporate superannuation administration system to underpin success in this area."
Meets the National Criteria
Mr Cicutto said the National had completed a due diligence investigation of MLC's business and held comprehensive discussions with MLC management.
"This meets all our criteria for disciplined acquisition," he said.
"MLC is a quality business and the integration risks are low.
"It is earnings accretive in year one and it enhances long term growth prospects for our shareholders.
"The acquisition will produce cost and revenue synergies of $138 million pre-tax by year three. The synergies have been reviewed by PricewaterhouseCoopers (cost saves) and Trowbridge (revenue enhancements).
Delivers on the National Strategy
"The National has a history of achieving profitable growth organically and by judicious acquisitions.
"The acquisition of MLC is entirely consistent with our strategic aims: to increase the value of our existing businesses, particularly those that use our strengths in relationship management and tailoring of financial services; and to accelerate the growth of selected businesses where our geographic spread and expertise give us a competitive advantage. MLC delivers on both of these.
"The capabilities we acquire with MLC increase the range of strategic options available to the group.
Employee Opportunities
"MLC and the National have quality management teams that will combine and be headed by Peter Scott, who will be based in Sydney.
"Employees of both MLC and the National can look forward to improved opportunities under our growth plans. MLC brings a strong advisory force, while the National employees have specialist skills in selling products through banking networks. These skills will be particularly valuable in linking MLC to the National's platform.
"There will be career opportunities for those who stay, and redeployment opportunities for those who are affected by the integration of the business.
Advisor Opportunities
"Advisors, both within the National and MLC, and the independents, will benefit from a wider range of opportunities and products.
"Both businesses have strong brands and these will continue to be developed and promoted.
"The National will offer MLC advisors the opportunity to market the National's leading range of bank products to their client base should they wish to do so.
"The National advisors will also benefit from having access to MLC's excellent delivery technology and platforms. For example, MLC has the market-leading MasterKey administration and client service system for financial planners.
Better Products for Customers
"The National and MLC's product ranges will be reviewed and combined to create an even wider range of top quality, best of breed products. This means more choice and more flexibility for all customers.
"For example, the National customers will gain access to MLC's 'Your Prosperity' online wealth management and investment system, and MLC will have access to the National's range of banking and financial services products.
"Customers' existing policies and accounts will be unaffected."
Ongoing Relationship
Mr Cicutto said the National and Lend Lease had agreed to explore opportunities related to:
the National's role in the financing of Lend Lease real estate investment products globally;
Lend Lease supply of real estate investment product (equity and debt) to the National's global distribution network;
potential synergies in the US loan servicing businesses where both parties have significant operations; and
co-operation in e-commerce initiatives currently underway in both companies.
"The combination of Lend Lease's property expertise and the National's financing capability opens a range of global opportunities," he said.
Value for the National Shareholders
"This has been a negotiated transaction which fits well with the National's acquisition price discipline.
"The acquisition adds value for shareholders. It is earnings accretive in year one, the projected rate of return on investment exceeds our cost of capital, and it enhances the long term growth prospects for the combined group."