Australia's AMP Ltd and French insurer AXA SA raised their takeover offer for AXA Asia Pacific Holdings by 16% on Monday to $11.7 billion, giving the target a week to agree to the new bid.
AXA Asia Pacific said it was considering the offer, which AMP and AXA SA declared “best and final”, setting a December 21 deadline for documents to be signed.
“That's pretty short. That's a bit unfair,” said Ross Barker, managing director of Australian Foundation Investment Co, AXA Asia Pacific's fourth-largest minority shareholder.
AXA SA, Europe's second-largest insurer, is eager to get its hands on AXA Asia Pacific's lucrative Asian operations, looking to double its exposure to fast growing markets in China, Southeast Asia and India. AMP, which will end up with the Australian and New Zealand operations, wants to build scale locally ahead of changes in rules on pension fund managers.
If it goes ahead, the deal would be the biggest takeover in Australia since Westpac Banking Corp bought St George Bank a year ago.
The question now is whether the French will face the same fate as they did five years ago, when AXA Asia Pacific rebuffed two all-cash buyout offers from its parent.
The latest offer raises the value on AXA Asia Pacific's Asian operations by 18% to A$9.1 billion ($8.3 billion) and unties the cash component from currency moves, addressing key concerns raised by AXA Asia Pacific in its rejection of the original proposal last month.
“We're pleased they've put in a higher offer. We'll have to review it,” said Barker.
The new offer is worth A$6.22 per share, based on AMP's Friday close, against the implied value of the original offer at A$5.34 a share and 45% above the target's share price the day before the first offer was announced in November.
Despite the higher bid, AXA Asia Pacific's shares fell 0.9% to A$5.77, reflecting doubts a deal would go ahead.
“It's not guaranteed to go ahead. It's more than likely, but not guaranteed,” said Tom Elliott, managing director of hedge fund MM&E Capital, which has a two-way bet on the deal's fate.
AMP shares rose 0.2% to A$6.24.
Besides uncertainty over whether the board will agree to the higher offer, it is unclear whether Australia's Treasurer would allow the French insurer to grab the Asian growth assets and whether Australia's competition regulator would allow the country's two big life insurers to merge.
If the deal does not go ahead, AXA Asia Pacific's shares could fall back below A$5 a share, Elliott said.
Analysts had predicted AMP and AXA SA would have to offer at least A$6 a share to get a deal over the line.
“I've always thought it should be somewhere above A$6. Over A$6.50 is getting to be a bit of a stretch, so this is smack bang in the middle. It has to be under serious consideration now,” said Peter Vann, investment manager at Constellation Capital Management, which owns AXA Asia Pacific shares.
Under the deal, AMP plans to buy all the shares in AXA Asia Pacific, including parent AXA SA's 53% stake, and then sell the Asian operations to AXA SA, Europe's second-largest insurer, but keep the Australia & New Zealand businesses.
AMP and AXA SA are offering 0.6896 AMP shares plus A$1.92 in cash per share, increasing the cash component from A$1.38 in the previous offer. AXA SA said it will pay 44 cents a share, or A$415 million, of the 54 cents increase to the cash component.
The A$6.22 a share offer is pitched at 21.4 times forecast earnings AXA Asia Pacific for calendar 2010, according to forecasts from Thomson Reuters I/B/E/S. AMP said its offer values the Australian and New Zealand operations at 18.6 times forecast earnings.
The revised offer raises the equity value of the Australia and New Zealand operations to A$3.7 billion.
“Our sense is that it's very fair and that the response should be positive,” AMP CEO Craig Dunn told reporters.
AMP expects the deal to boost its earnings per share from the second year after it is completed. It hopes to close a deal by May. (Reuters)