Back in August 2008 the then prime minister Kevin Rudd was at the peak of his power. He amended his schedule to open the new AXA Asia Pacific head office in Melbourne. Prime ministers rarely open buildings, but at that opening the contents of Rudd’s speech showed that this was a deliberate, strategic move — the Australian AXA company was a great chance for Australia to play a major role in the Chinese and Asian services industry.

I heard the Rudd speech and it was excellent and showed he was passionate about the need for the development of an Australian presence in Asian services. In his wildest dreams Rudd could not have imagined what would happen in the next 28 months…

  • It would become apparent that AXA is not only a great chance to develop a major services presence in Asia but it’s probably our only chance. Mike Smith at ANZ is finding out just how difficult the task of expanding into Asia has become.
  • Rudd had no way of knowing that in November 2010 China would give the Australian company “local status”, so instead of fighting for the 5% of the China market, which is all that is allowed for foreigners, AXA APH would have access to 100% of this enormous market in partnership with China’s biggest bank. It would be the biggest services industry deal Australia has ever undertaken. It was timed just as the China middle class is exploding.
  • Who could have imagined that a tired AXA APH board would recommend a bid that clearly undervalued the Australian Asian operation and gave no value to the amazing China deal that the Australians had secured a week earlier.

Treasurer Wayne Swan and his assistant Bill Shorten will have to decide whether the bid is in Australia’s national interest. (And that was not a slip of the pen — that’s the way Canada and Europe now look at foreign deals.) I don’t envy them because it will not be an easy decision, and they will be subject to incredible pressure from the marketplace.

On the surface it will be the easiest decision they have to make. The proposal that is being put before them is an AMP takeover of the Australian operations of AXA which will give AMP more grunt and put the company in a better position to take on the banks. AMP chief Craig Dunn has put together a wonderful deal for AMP and, given that long-term AXA shareholders become equity holders in AMP, AXA investors will still participate in the Australian operational benefits.

But although the AMP-AXA upfront deal gets all the headlines it is a minor part of whole exercise. You can argue about the exact amounts, but in the broad the Australian AXA operation is being valued at $4.6 billion and its Asian operation which will be bought by AXA in France for $10.6 million — in other words the local part of the deal is barely one-third the total.

The French want to takeover Australia’s density in Asia — to be one of the biggest producer and marketers in Asia of life and savings product. The federal government has to decide whether it is in the Australian national interest for the French to take over our key position in China/Hong Kong, India, Indonesia and other countries in the region. Australian skills have given AXA  unique place in a region where growth is set to explode.

Australia is in this amazing position because of remarkable foresight in 1995 by the then prime minister Paul Keating and his treasurer Ralph Willis. Keating tried to convince Australian companies to go to Asia. He was right but in the main corporate Australian would not listen. AXA was his triumph and was so spectacular that perhaps it made up for the rest.

The French will come back strongly and remind Messrs Swan and Shorten that when in 1995 the French acquired 51% of old National Mutual (now AXA Asia Pacific) Keating and Willis required the French to give Australia the right to lead AXA’s charge into Asia.

The French agreed because they desperately wanted to get into Australia. Now the French want to leave Australia and they want to be allowed to take full ownership and control of Asia. And the French will argue that allowing them to replace Australia in Asia is only fair because the Australian operation will return to Australian control. In my view that’s absolute rubbish — the world has changed for Australia; and we did all the Asian pioneering work both before and after 1995.

Australian treasurers normally have the chance to make a history-making corporate decision during their time in office. For Willis (with the help of Keating) AXA was his finest decision. Arguably the best corporate decision Peter Costello ever made was to block the Shell takeover of Woodside — both for Australia and Woodside shareholders.

Swan and Shorten will fully understand just how important being the major provider of life and savings products to Asia is for Australia. For AXA shareholders there will be short-term pain if the deal is blocked on national interest grounds (as happened with Woodside) but long-term they will be big winners. For Australia the spin-off benefits will multiply many times as the years go on — particularly given the China deal. But if Swan and Shorten want a second opinion, just ask Rudd or Keating.

Peter Fray

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