UNIT University Network for Investing and Trading UniMelb

M&A and Deals 25/04/2018

By: Tony Xie

Commonwealth Bank

In what could be the largest initial public offering (IPO) since the flotation of Medibank Private back in 2014, the Commonwealth Bank of Australia (CBA) announced on Tuesday 17th April its intentions of divesting its global wealth management division, Colonial First State Global Asset Management (CFSGAM). Following a strategic review of their core business by JP Morgan in 2017, CBA has cited various reasons for its recent decision, primarily centering around maximising shareholder value and injecting business growth. Whilst CBA could not be described as an ailing business, analysts have long questioned CBA’s decision to maintain such a large wealth management branch; Hong-Kong based investment bank CLSA believes that the fund management industry is largely dominated by firms who are either “global scale players or performance-drive boutiques”, whereas CFSGAM lies somewhere in between the two. The Catherine Livingston-led CBA board echoes such sentiment, concluding that “independent ownership model could provide greater benefits”.

Analyst at Goldman Sachs value CFSGAM of “$3.7 billion to $4.8 billion”, following cash net profits of $149 million in the latter half of 2017. According to the CBA statement, an IPO for CFSGAM is projected to happen before the end of 2018, “subject to market conditions and necessary approvals”. Closer observes of CFSGAM would have perceived hints of its closure, as the business shut down its 25-year-old flagship Australian equities function earlier this year. CBA is not the only bank in recent years to abandon its wealth management sector, with Westpac first cutting its own asset management branch, BT Investments, back in 2015.   Whilst the Westpac merely reduced its exposure by about 20%, CBA may be looking at selling over 70% or more of its holding, with Swiss bank UBS expected to lead the $4 billion ASX listing.

OZ Minerals

Based in Adelaide, OZ Minerals is a relatively young competitor in the mining industry. Only a decade old, the company has traditionally operated out of only one location, the Prominent Hill Mine in South Australia. As a single-asset operator, the company is well aware of the natural constraints associated with their only active mine and has actively searched the market in hope of new opportunities. On March 27th, OZ Minerals decided to pursue a scrip bid for Avanco, an Australian-based resource company with focuses on copper-assets in Brazil. Whilst the deal is not yet complete, Avanco’s board has endorsed OZ Mineral’s $444 million takeover bid; if materialised, the bid will allow Avanco shareholders to effectively own 7.3% of OZ Minerals. However, with over $600 million in cash balances at the end of the March quarter, OZ Minerals chief executive Andrew Cole said last Tuesday that the firm is not yet done and will “continue to look at other opportunities in the marketplace” beyond the Avanco deal.  To facilitate this, OZ Minerals has instilled a special team to scrutinise both the Australian and Global market for similar opportunities.

Sources: AFR, Sydney Morning Herald, and Motley Fools

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