National Australia Bank Ltd (NAB) agreed to buy Aviva Plc’s Australian wealth advisory and life insurance units for A$825 million (US$662 million) in cash in its biggest acquisition since the financial crisis began.
Australia’s third-largest bank expects the businesses will add to earnings within a year of the purchase, the firm said in a statement to the stock exchange yesterday.
Chief executive officer Cameron Clyne is adding operations more resilient to a slowing economy, said Hugh Dive, who helps manage US$3 billion at Investors Mutual Ltd in Sydney. While Australia has so far skirted the recession gripping the US, Europe and Japan, Clyne has said rising unemployment will cause more Australians to default on their debts, hurting bank profits.
“It’s not a bad business,” and it’s a good time to boost life insurance earnings, Dive said. “People in down markets feel a little bit more vulnerable, more concerned about what happens to the family, so it’s an easier sell.”
National Australia Bank shares climbed 0.8 percent to A$22.27 at 12:20pm in Sydney trading. They have advanced 39 percent since slumping to a 12-year low in March.
The bank will get Aviva Australia’s Norwich Union Life and Navigator businesses, as well as stakes in four independent financial advisory firms, it said in a statement.
Aviva Australia’s life insurance business has A$256 million in premiums and oversaw A$3.7 billion in December. Its investment platform managed A$12 billion as of March, while its distribution business includes stakes in four groups representing about 268 advisers, the bank said.
Aviva, the UK’s biggest insurer, will receive a dividend of A$40 million paid by the Australian unit and forecast a net asset adjustment of A$60 million, taking total proceeds from the sale to A$925 million, it said in a separate statement.
Aviva is cutting products and jobs to improve earnings at its general insurance unit as the UK economy slows. In March the firm posted a loss for last year of £915 million (US$1.5 billion) as it wrote down the value of corporate bond holdings.
The Aviva purchase is National Australia Bank’s biggest since it agreed in November 2007 to pay US$798 million for Omaha-based Great Western Bancorporation Inc.
National Australia Bank is paying a price-to-earnings multiple “below sector comparables,” it said yesterday, without specifying a figure.
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