National Australia Bank (NAB) will buy Aviva's life and pensions business as well as its wealth management platform in Australia -- collectively named Aviva Australia -- for A$925 million ($737 million).
The total acquisition cost is split into an A$825 million cash component; a A$40 million dividend that Aviva Australia will pay before the deal closes; and an estimated A$60 million which is a net asset adjustment to be paid post completion. Aviva said the price it has realised represents 16 times net earnings in 2008.
The cash consideration of A$825 million represents a price-to-embedded value of 1.1 times, based on Aviva's embedded value of A$734 million as of December 31, 2008. NAB said the deal will be earnings-per-share and return-on-equity accretive in the first year, not accounting for integration costs. Through the deal, NAB gets access to around 350,000 Aviva Australia customers. NAB will also acquire the Navigator brand and will be allowed to use the Aviva and Norwich brands for a defined transition period.
Once the acquisition is completed, NAB will consolidate the Aviva Australia business, which is ranked the ninth largest player in Australia's life insurance market and eighth in wealth management, into its own franchise. NAB's wealth management division, called MLC, had assets under management of A$102 billion at the end of calendar 2008.
In March, NAB's group chief executive officer Cameron Clyne told shareholders that a focus on Australia underpinned NAB's strategy and that growing the wealth management business was a strategic priority. This deal positions him well on both counts, with analysts reckoning that NAB will now become the largest life insurance provider in the country and also one of the largest wealth management players.
The deal is subject to Australian Competition and Consumer Commission approval and is expected to close in the third quarter of 2009.
The Australian business of Aviva Investors -- the firm's global asset management arm -- is not part of the sale and Aviva said it remains committed to this business in Australia.
Aviva is the world's fifth-largest insurance group and the largest insurance services provider in the UK. It said the sale is part of a strategy to focus on key growth markets in Asia where it believes it can become a leader. "It would be challenging to reach a leading position in Australia in the foreseeable future in an increasingly consolidated market," Aviva said in a written statement.
Specifically, Aviva intends to enhance focus on China and India, citing its success in becoming the second-largest foreign life insurer in China in just six years. In 2008 Aviva grew its life and pension businesses in the region by 8% and established new ventures in Malaysia, South Korea and Taiwan. In connection with declaring its 2008 earnings, Aviva said Asia "remains an attractive region for growth due to low insurance penetration in most countries, an ageing population, a fast expanding middle class and high gross domestic product growth".
NAB's share price gained around 2% on the Australian Securities Exchange yesterday to close at A$22.49.