(FT) -- Australia's AMP has teamed up with French rival Axa to engineer an A$11bn US$10.2bn bid for Axa Asia Pacific, the Australian listed asset manager, in one of the largest takeover offers in the financial services sector since the onset of the financial crisis.
Axa Asia Pacific, which is 53.9 per cent owned by Axa, on Monday rejected the insurance group's unsolicited offer, saying it was timed to coincide with weakness in global financial markets and failed to fully reflect the prospects for its higher-growth Asian operations.
To fund the deal Axa, France's biggest insurance group, on Monday announced it was to launch a €2bn rights issue which it would also use to fund potential buy-outs of minority interests in central and eastern Europe. Henri de Castries, executive chairman of Axa, said the joint bid offered "compelling value" to Axa Asia Pacific's minority shareholders and "the opportunity to become shareholders of a larger and stronger AMP Group which will permit them to share directly in the significant synergies that this transaction would create".
Axa is to offer 174.1m new shares in what amounts to a one-for-12 rights issue at €11.90 -- a 27.9 per cent discount to the theoretical ex-rights price, a measure that takes into account the capital structure of the group after the new shares are created -- based on Axa's closing price of €16.88 on November 6.
Under the proposal, AMP would buy all the shares in Axa Asia Pacific, sell the Asian operations to Axa for A$7.7bn and retain the group's Australian and New Zealand units.
The implied value of the cash and scrip offer of A$5.34 a share was pitched at a 24 per cent premium to Axa Asia Pacific's Friday closing price. Its shares rose by a third on news of the spurned approach, closing A$1.40 higher on Monday at A$5.70.
That increase reflected the market's belief that the pair would need to raise their price. Analysts also suggested other parties, including some of Australia's biggest retail banks, might also be interested in buying Axa Asia Pacific's local operations.
Johan Vanderlugt, an analyst at Daiwa Research, said a "fair" acquisition price was A$5.75.
However, Rick Allert, Axa Asia Pacific chairman, indicated he thought a price of more than A$6 a share was needed.
Axa has this year denied it might need to call on shareholders for capital to shore up its balance sheet but said recently that if a good acquisition opportunity appeared, the funding would materialise too.
"Acquisitions are like truffles -- you keep looking for them but don't find them under every tree," said Mr de Castries at the end of September. "If the project is right, one always finds the financing."
Mr Vanderlugt said it would be "extremely difficult" for Axa Asia Pacific to turn down another approach from its French parent.
"We have always held the view that Axa Asia Pacific in a standalone setting has insufficient scale to pursue the growth opportunities in Asia, particularly in China and India.
"Furthermore, AXA's strategic weakness is its underweight position in Australian wealth management. Through the combination with AMP, they would create a strong independent wealth manager that is well-placed to compete with the major [Australian] banks," Mr Vanderlugt said.
The offer is one of the largest in the global financial services industry since BlackRock, the US asset management firm, in June agreed to buy Barclays Global Investors for $13.5bn. It is also one of the biggest bids in Asia this year.
AMP and Axa Asia Pacific were both interested earlier this year in buying Aviva's Australian life insurance and wealth management units. However, National Australia Bank won the auction when it agreed to pay up to A$925m.
Mr Allert said the group's independent board committee would consider "compelling strategic options" that were in shareholders' interests.
However, AMP said Axa Asia Pacific's minority shareholders were being offered a significant premium and the opportunity to become shareholders of an enlarged group.
Axa is also auctioning its 15.6 per cent stake in Taikang, China's fourth-largest insurer, which has attracted foreign and domestic bidders, and is valued at up to $1bn.
In 2004, Axa offered A$3.3bn to buy the part of Axa Asia Pacific it did not own, in a deal that valued the business at A$6.9bn. The bid was dropped after it failed to win the backing of the Australian group.
The offer included 0.6896 AMP shares and just under A$1.38 in cash for each Axa Asia Pacific share.
Axa Asia Pacific was formerly known as National Mutual in Australia and National Mutual Asia in Hong Kong.
Axa Asia Pacific is being advised by Macquarie, UBS is acting for AMP, and Deutsche Bank is acting for Axa.
© The Financial Times Limited 2009
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