It’s not often a takeover is detrimental to shareholders in the company being taken over. In almost all instances, the acquirer pays too much for the target due to the hubris of executives managing the acquirer. But in a truly extraordinary feat, it appears that the management of AXA Asia Pacific have managed to do what few companies, other that MIM and BHP have achieved — sell their company for too little. At the same time, the CEO of AXA AP will be leaving the building with a $17 million golden goodbye. There is no evidence to suggest that the two events are linked, other than perhaps human nature and common sense.

For those who haven’t been following the story, it goes something like this. In the early 1990s, National Mutual,  the Melbourne-based life insurer was forced to de-mutualise and accept a $1.1 billion investment from French-based AXA. AXA France took a 51% stake in the insurer, which was floated on the stock exchange the following year. (AXA France’s stake has risen to 53% since).

AXA AP not only ran an Australian business, but also ran a lucrative Asian business. In 2004, shortly after the brief recession, AXA France attempted to purchase the 49% of AXA AP, which it didn’t own. Your correspondent (who back then was a mergers and acquisitions lawyer) did a small amount of work on the deal, which was rejected by the AXA AP board on the basis that it was too cheap. The French, famous for not increasing offers, unsurprisingly refused to increase their bid and existing arrangement remained in place.

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That was until November 2009, when the French-based AXA came up with a plan to acquire the firm’s Asian assets and sell the Australian business to AMP (for what was about $5.34 per share). A month later, NAB (which already owned MLC was seeking to expand its wealth management business) made an offer for $6.43 per share cash (and some other share-based options). NAB’s bid was later rejected by the ACCC (who preferred AMP to become a “fifth pillar” than NAB acquire dominance in the wealth field). AMP would later receive AXA AP board approval for a bid that was no less than $6.43 made up of cash and shares.

Ostensibly, that appears to have been a not altogether poor result for AXA AP shareholders. While AXA AP’s share price is well below its 2007 peak (of $8.30) but was a substantial premium on its GFC low of $2.99.

However, all is not what it seems. This has been revealed by Business Spectator’s Robert Gottliebsen, who has produced some fantastic coverage of the AXA acquisition. Gottie seems to have been briefed by hedge funds or other insiders with an intimate knowledge of AXA AP’s affairs and described the takeover of AXA AP as “one of the saddest days in Australian finance history” — he probably isn’t too far off.

Yesterday, that sad day happened, after 99% of AXA AP shareholders followed their board’s advice and voted in favour of the acquisition. In a case of the blind leading the blinder, the AXA AP board includes a long-time director of the collapsed Centro and two directors of Coles Myer, who approved of the sale of Myer to a bunch of private-equity firms who promptly made $1.5 billion.

As Gottie pointed out, AXA’s Chinese business (which is being sold to the French AXA as part of the deal) recently negotiated an agreement which awarded the company “access to the biggest branch network in China and a 200 million person customer base”. This potentially lucrative deal, and the potential benefits, were not fully explained to AXA AP shareholders. More importantly, it does not appear that AXA AP shareholders received any more money from the French AXA, despite the value of the Asian business ostensibly increasing.

Gottie also noted that AXA AP didn’t adequately disclose to shareholders that it achieved a huge increase in its actuarial valuation in the December half — another substantial benefit that would (and should) have effected how shareholders viewed the sale to AMP and AXA France.

Of course, it wasn’t really in the interests of AXA AP’s executives to stop the deal — to the contrary. AMP and AXA (France) effectively bought their support with a massive “bribe”. Of course, the gentrified world of finance doesn’t refer to such payments as “bribe”, instead, they call it a “termination payment”. That is, Andy Penn, AXA AP’s CEO (who is also on the board of AXA France) received a very golden goodbye of $17 million, of which $7 million was a “termination payment”. In total, AXA AP executives received $49 million in termination payments. It is fair to say, for that kind of money, AXA France and AMP would have been buying a pretty strong endorsement of their offer. (To be sure, we are not suggesting that Penn or AXA did anything remotely illegal, and it wasn’t really a “bribe”, in the criminal sense.)

Penn became CEO of AXA AP in 2006 — since then, the company’s share price hasn’t gone anywhere (despite the Australian business being exposed to the Asian growth). For his trouble, Penn received a payment in lieu of notice (of 12 months and 80% of his bonus), as well a $2.4 million in redundancy payments, as well as the $7 million ‘termination’ payment.

Every aspect of this payment is appalling.

For a start, AMP’s original bid arrived in November 2009, so one wonders why any notice is needed given Penn has known about the company being in play for almost 18 months.  Further, why does Penn need a redundancy payment AND a termination payment? Could Penn, who was paid $3.6 million last year, not make do with a three months termination payment like most other Australian workers?

Of course, for AMP and AXA France (who effectively paid the huge termination payments), $50 million is a shrewd investment to ensure that the acquisition is able to succeed.

Sad day, indeed.

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Peter Fray
Peter Fray
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