New Axa bid may spark big shake up

The New Zealand financial services market looks set for a major shake up with market sources tipping Australian giant AMP's rejigged offer for Axa Asia Pacific as likely to succeed.

However, one source has raised the possibility that the offer may come unstuck if speculation around an even bigger deal, a major bank bid for AMP, proves to have foundation.

AMP and Paris based-Axa SA - the majority owner of Axa Asia Pacific - yesterday announced they had lifted their offer for Axa Asia Pacific from A$5.34 to about A$6.22c per share.

While the amount of AMP scrip offered remains the same, the cash component has increased from a variable amount around A$1.38 to a fixed A$1.92 per share, valuing the company at A$12.85 billion given AMP's current share price.

The bidders have given Axa Asia Pacific seven days to consider the offer.

"Everybody that's ever been in the Australian stock market and has watched corporate manoeuvring always knows, without exception, the first bid is never the last bid," said market commentator Arthur Lim.

Whether the new offer was sufficient would depend on behind the scenes negotiations.

"Is this the definitive agreement? One suspects it is."

Lim noted AMP's earlier offer had not resulted in any rival bids. "Someone like AMP wouldn't increase its offer and there certainly hasn't been competing offers. A move like AMP's usually flushes out potential bidders."

Another market source noted the proposal had aspects of a merger, with Axa SA, which owns 53 per cent of Axa Asia Pacific, likely becoming AMP's largest shareholder as a result of the scrip element.

"It's a pretty compelling transaction for both parties as it allows them to bulk up very quickly and there's real concern that if they don't bulk up they will become a takeover target for one of the large Australian banks.

"Everything now hinges on whether a counter bid comes up and the feeling is there won't be one for Axa Asia Pacific but there could be one for AMP. If one doesn't eventuate then I think this deal has got a strong possibility of going through."

Australian media have speculated ANZ Banking Group is the most likely AMP bidder out of the big four banks.

Philip Macalister of financial adviser news website GoodReturns expected the Axa proposal would succeed.

"Axa is essentially controlled by Paris, and if you look at what else is going on, these European-based organisations tend to at some stage want to quit their Australasian interests. I'm sure Paris and Sydney are talking to each other and Sydney knows what Paris wants. If a decent deal's put on the table Paris will take it."

Macalister said a combined AMP and Axa Asia Pacific would mean consolidation in the financial services sector here. Both companies have sizeable distribution networks in New Zealand although AMP's network of advisers was more closely aligned to the company whereas Axa's network was primarily third-party advisers.

Macalister also observed that a combination of AMP and Axa would provide a meaningful challenge to Commonwealth Bank of Australia-owned market leader Sovereign in the life insurance sector and ING in the KiwiSaver market. A combined entity would also create New Zealand's largest managed fund.

Including wholesale and institutional funds under management, AMP's New Zealand investment operation has around $11 billion under management while Axa NZ has about $7 billion under management. A combination of the two would easily outstrip the NZ Superannuation or "Cullen" Fund, which has about $13.3 billion under management.

AMP shares closed steady at A$6.23 yesterday, while Axa Asia Pacific stock was down 10c at A$5.72.

WHAT IT MEANS

* AMP and Axa SA have lifted their offer for Axa Asia Pacific by 16 per cent.

* The new offer values Axa APH, which operates a New Zealand financial services business, at A$12.85 billion.

* Market watchers expect the bid to succeed unless one of the major Australian banks springs an offer for AMP itself.

* If it succeeds, AMP will become New Zealand's largest fund manager and will gain scale in the life insurance and KiwiSaver markets.