Challenger shares leap on Packer bid

SYDNEY - Australia's Kerry Packer unveiled plans to create a A$1 billion ($1.07 billion) financial services group yesterday after his investment company launched a takeover for his part-owned fund management and life insurance interests.

CPH Investment will merge with Challenger International under the deal which lifts Packer's stake in Australia's fast-growing funds management industry and combines his troubled financial services assets.

CPH also announced it had appointed high-profile fund manager Chris Cuffe as chief executive in a move investors said signalled a greater emphasis on funds management in the Packer camp.

CPH offered 4.5 units for each share in Challenger, valuing the finance group at A$592 million ($643 million), or A$2.03 ($217) per share, based on CPH's closing price after the deal was announced yesterday.

Challenger shares, which have lost almost half their value in the past year, leapt 15 per cent to A$1.97 ($2.11) on the news in a slightly firmer overall market. CPH stock gained 7.1 per cent to a 12-month high of 45Ac each, giving the combined group a market capitalisation of almost A$1 billion ($1.07 billion).

"The merger will significantly strengthen the capital base of Challenger and provide improved access to capital for its existing and future business needs," CPH chairman James Packer said.

Packer senior, Australia's richest man is renowned for his investment acumen, owns 19 per cent of Challenger and controls 30 per cent of CPH.

CPH also said it had appointed Cuffe, former chief of Commonwealth Bank of Australia's Colonial First State's Australian funds management operations, as chief executive.

"He has a very strong track record in the funds management industry. There is a strong rumour that after Mr Cuffe joins other people will come through later on," Tower Asset Management head of Australian equities Albert Hung said.

The deal follows a wave of consolidation in Australia's broking and funds management sector.

Challenger, which has been hurt by weak global equity markets, announced plans last month to merge with stockbroker Bell Potter Securities as it focuses outside its life business and fund management.

CPH has also come under criticism from some rebel shareholders who have submitted a proposal to wind up the company.

CPH said Kerry and James Packer had resigned as directors of Challenger to avoid a conflict of interest in relation to the merger.