French insurer AXA SA and Australia's AMP Ltd need to sweeten their bid for AXA Asia Pacific Holdings by about 10 percent to seal the proposed $11 billion deal, analysts and fund managers say.
More than a week after the Paris-based parent made a tilt at its Australasian operations, there is a standoff with Axa Asia Pacific refusing to enter talks on a proposal they have rejected.
The deal is designed to deliver AXA the coveted Asian wealth operations in return for selling the local operations to AMP.
AXA shares have consistently traded above the implied value of AMP's cash and share offer price, suggesting that traders are betting on an improved offer.
And as analysts and potential counter bidders debate the value of the offer and the true value of AXA Asia Pacific's Asian operations, talk is rife that AMP and AXA will sweeten their offer to get the deal done.
Ross Barker of the Australian Foundation Investment Co, AXA AP's seventh-largest fund shareholder says it is a long term investor and not keen to sell at the current price.
We don't find the offer compelling, Barker said. We're quite happy to sit with what we've got.
But AMP insists that its offer is compelling, and on Tuesday Chief Executive Craig Dunn cast doubt about a higher offer, saying the price had to be economically responsible.
It's the second time in five years that Europe's second-largest insurer has attempted to get its hands on the Asian operations owned by its Asia-Pacific subsidiary and this time it's raising 2 billion euros ($3 billion) to help fund the deal.
Analysts and industry sources say AMP could lift the offer price to about A$6.00 each, compared with its offer price initially worth around A$5.43 a share. AXA shares currently trade at A$5.83.
The current offer already looks rich, valued by analysts at around 1.7 times AXA AP's book value. National Australia Bank Ltd paid 1.1 times for the local insurance assets of Aviva Plc earlier this year while Australia and New Zealand Banking Group paid 1.2 times to buy ING's stake in their Australian and New Zealand wealth joint venture.
Still, analysts say AMP and AXA could bump up the offer as the French parent desperately wants to take full control of the Asian operations.
AXA AP's operations in eight Asian countries give it access to markets characterized by high savings rates, low life insurance penetration, favorable demographics, emerging national savings systems and economies growing faster than global average.
Spokesmen for AXA AP and its French parent reiterated their initial stances when contacted for comment. The proposal significantly undervalues the business of Axa Asia Pacific, according to the unit, but is fair and compelling according to AXA SA.
AMP can also afford to pay more than the estimated A$4 billion it has offered for AXA's local operations, having already lost out in the bidding for Aviva's assets to NAB, analysts say.
The metrics of the deal are such that there's a possibility AMP and AXA SA have to lift their bid, said Tom Elliott, managing director of MM&E Capital, a hedge fund that invests in M&A transactions.
The proposal has shaken up the profitable wealth management sector in Australia, sparking a flurry of takeover talk including that one of Australia's big four banks will bid for AMP as they jostle to gain scale and position in wealth management.
That's a scenario most bankers familiar with the sector dismiss due to the size of such a takeover and the resulting entity.
Of the banks, only Commonwealth Bank of Australia, already the nation's largest fund manager, is seen to be in a financial position to make a bid for AMP, which has a market value of more than A$13 billion.
But that would create a monolith in Australian wealth management and would likely run into government competition constraints.
An exclusivity arrangement between AMP and AXA SA in place until early February precludes other parties from bidding for the sought-after Asian assets, or the local ones.
(Editing by Lincoln Feast)