Will NAB do whatever it takes to acquire AXA Asia Pacific?

NAB's determination to acquire AXA Asia Pacific reflects not only the potential threat posed by a larger and more aggressive AMP but also, as Mike Taylor reports, a degree of corporate hubris fuelled by perceptions of regulatory intransigence.

The level of determination exhibited by National Australia Bank (NAB) in its long quest to gain control of AXA Asia Pacific suggests that there are those on the board and the executive of the big banking group for whom it is personal.

While the acquisition of AXA Asia Pacific would certainly strengthen NAB’s position in a crucial sector of the Australian financial services industry, it is not and never has been critical to the company’s long-term strategic objectives.

Indeed, when the Australian Competition and Consumer Commission (ACCC) vetoed the NAB bid in mid April, the big banking group could have easily walked away from the transaction.

That its eyes have remained firmly fixed on what is arguably a non-critical prize tells you that commercial rationality has become blended with corporate, not to say, personal hubris. The cost to NAB shareholders, while not excessive, has been considerable.

A number of factors have contributed to NAB’s determination. One is undoubtedly the questionable reasoning utilised by the ACCC in vetoing the original bid. Another is clearly the commercial and competitive challenges likely to be generated by AMP gaining control of AXA.

The ACCC’s original reasoning will undoubtedly be closely scrutinised as the regulator reviews NAB’s revised offer, which is predicated on its divestiture of AXA’s North Platform to IOOF.

Equally subject to scrutiny will be whether the competitive needs of the industry would be better met by AMP gaining control of AXA Asia Pacific, including the North platform.

To quote documentation issued by the ACCC to market participants, the proposed AXA undertaking at the heart of the revised offer “provides for the divestiture of the North platform administration business carried out by AXA using the Bluedoor software (owned by DST Global Solutions)”.

However, the ACCC documentation notes that: “The divestiture proposal does not include divestiture of the North products, which are administered on the North Platform.

Instead, NAB’s proposed undertaking provides that the AXA product issuers who supply the North products will enter into a Platform Administration Services Agreement, with the approved purchaser to administer North products on their behalf for a period of three years following completion of the purchaser product capability.

“NAB has submitted that a period of three years is sufficient time to allow the approved purchaser to establish its own competing products on the North platform and build sufficient scale in funds under management to enable the approved purchaser to continue to invest in the North platform on an ongoing basis.”

The ACCC said it was also conducting an assessment of IOOF as the proposed purchaser of the divestiture business, noting “the ACCC is interested in assessing the capability of IOOF to operate the divestiture business as a viable, effective, standalone, independent and long-term competitor for the supply of retail investment platforms for investors with complex investment needs”.

“Critical to this assessment is the capability of IOOF to operate the divestiture business and provide rigorous and effective competition, in particular on the basis of the functionality and quality of service, such that it has the ability to act as a competitive constraint on a merged NAB-AXA and other market participants.”

What is not stated in the ACCC documentation but will be assumed by all the market participants is that while IOOF’s ownership of the North platform will generate a degree of competition in the marketplace, it will not be the same degree of competition that would be generated by ownership of the North platform and the broader AXA Asia Pacific product set by AMP.

Indeed, there are those in the financial services industry who are suggesting that the divestiture of the North platform represents a very small concession on the part of NAB to gain control of AXA Asia Pacific.

The managing director of research house Wealth Insights, Vanessa McMahon, noted to Money Management this week that the North platform was hardly dominant in the adviser space and accounted for only about 7 per cent usage this year.

“It has simply not been a dominant or preferred primary platform,” she said.

According to a number of analysts, one of the biggest winners from the current exercise is likely to be IOOF, with some suggesting the purchase price of the North platform is immaterial to IOOF because NAB will be paying for its near-term development.

However, consistent with the ACCC’s concerns, the analysts noted that IOOF did not possess a distribution footprint to compare with AMP, but still claimed 640 aligned advisers with around double that number of independent financial advisers.

The chairman of the ACCC, Graham Samuel, might therefore be asking how much more competitive the North platform might be with the kind of distribution channels and adviser numbers that can be provided by AMP.

Anyone reading the ACCC’s documentation would do well to note that not only does it discuss the impact on competition of the divestiture of the North platform but also whether that divestiture would be “sufficient”.

Those on the NAB board championing the AXA acquisition might consider the ACCC’s terminology and reflect on what else they have to do to get approval.