Mergers and Acquisitions Assignment

EXECUTIVE SUMMARY

Mergers and acquisitions are one of the popular topics in business today,
since they characterize the new economy: pressure of global competition,
development of technology and disappearance of country boundaries. The
purpose of this thesis is to study the valuation processes and approaches
in mergers and acquisitions by analyzing the Westpac Banking
Corporation/BT Funds Management case. Discounted Cash Flow and
Comparable Multiples approaches are emphasized in the valuation of the
companies.

Based on the valuation this report will identify the benefits for Westpac
acquiring BT Funds Management.

The report first introduces the general conditions of merging, in the Funds
Management industry recently and admits that there are some limitations
in the report because the merging is going on now and was hard to collect
comprehensive information.
 Management Structure at Westpac
David Morgan, Chief Executive Officer
Philip Chronican, Chief Financial Officer
David Clarke, Group Executive, BT
Financial Group
Leon Davis, Chairman
Phil Coffey, Group Executive, Westpac
Institutional Bank
Westpac Banking Corporation
ASX Code: WBC
Formerly: Bank of New South Wales,
01/10/1982.
Listing Date: 31/01/1962
Head and Registered Office
Level 25, 60 Martin Place, Sydney, NSW, 2000
Internet: www.westpac.com.au
Auditor: Pricewaterhouse Coopers
Principal Activity
The provision of financial services including
lending, deposit taking, payments services,
investment portfolio management and advice,
unit trust and Superannuation fund management,
nominee and custodian facilities, insurance,
services, consumer finance, leasing, general
finance, foreign exchange dealing and money
market services.
Introduction
In recent years crashing markets and a stalled
economic recovery many financial institutions have
been involved in merging and/or acquiring companies
to increase their market value. Recent examples of
Mergers & Acquisitions in Australian financial
institutions are National Australia Bank acquiring MLC,
Commonwealth Bank acquiring Colonial First State and
Westpac Banking Corporation over BT Funds
Management; Rothschild; and Hastings.
This paper concentrated on the Westpac Banking
Corporation (WBC) acquisition of BT Funds
Management from The Principle Office Group (POF).
The discussion will incorporate aspects of the
transaction such as market values, synergy, acquisition
process, and integration issues.
Some of the figures used in this report are obtained
from Westpac Banking Organisation. Also the data
used is obtained from the various presentations by
POF and WBC at the time of the acquisition.
Overview of the Funds Management Industry
In recent years due to poor market performance the
funds management industry in Australia has largely
suffered. Due to this investors are more cautious and
have deserted equity-weighted managed funds.
This is the reason why a lot of small and big fund
mangers have been acquired by large financial
institutions such as the BIG FOUR BANKS in Australia.
$434 million net inflow compared dismally with the
$1.2 billion that flowed into managed funds in the
December 2002 quarter and the $3.1 billion figure for
the March quarter last year.
Fund managers have been experiencing an outflow of
investors rather then inflow as was the case 8 years
ago, in 1995 when managed funds were the
investment choice of sophisticated investors.
Acquirer Overview – Westpac Banking
Corporation
The Bank was established in 1817 as the Bank of New
South Wales, the first bank in Australia. The Bank's
Savings Bank subsidiary was formed in 1955. The
savings bank was merged with the trading bank on
01/10/1993.
In 1957, a 40% interest was acquired in the major
financier, Australian Guarantee Corporation Ltd (AGC),
which was increased to 52.5% during 1972. In 1978,
this holding was further increased to 76.8% following a
three-for- five share exchange offer. Subsequently in
1988, the Bank made a successful bid for all the
outstanding shares in AGC.
(C.B.A.).

Principle Office Fund
ASX Code: POF, since 17/10/2002
Formerly BT Office Trust (BTO)
16/10/2002
Grosvenor Trust (GTT) 07/03/1997
Listing Date:8/04/1993
Head and Registered Office
Level 15, 2 Chiefly Square Sydney NSW
2000
Internet: www.principalofficefund.com.au
Auditors: Pricewatehouse Coopers
Principal Activity
Investment in commercial office buildings
in Australia.
Substantial Shareholders
JP Morgan Nominees Australia Limited
(10.1%)
RBC Global Services Australia Nominees
Pty Ltd (13.7%)
Cogent Nominees Pty Limited (5.5%)
Queensland Investment Corporation
(8.4%)
AMP Limited (5.8%)
Barclays Global Investors (5.0%)
Lend Lease Corporation Ltd (5.1%)
National Australia Bank Limited Group
(7.5%)
Westpac Banking Corporation (10.9%)
The Bank's name changed to Westpac Banking
Corporation (Westpac) occurred on 01/10/1982,
following the merger of the Bank of New South Wales
with The Commercial Bank of Australia Ltd. The merger
was effected by a share exchange involving the issue of
two Wales $1 shares plus $1.50 cash for each C.B.A. $1
ord. stock unit held; holders of $20 pref. stock units
were offered $20 cash per pref. stock unit.
The Commercial Bank of Australia Ltd was established in
Melbourne in 1866 and by 1890 had branches in all of
the mainland colonies. In 1912, operations were
expanded to New Zealand, and in 1962, the Bank's
savings bank activities commenced. Diversification
focused on financing operations with the establishment
of General Credits Ltd in 1956, a financier engaged in
the provision of leasing, instalment mortgage and
project financing and factoring; and C.B.A. Finance
Holdings Ltd (51%), a listed New Zealand public
company. Through other subsidiaries, its operations
included unit trust management, travel and nominee
services, general insurance and insurance broking.
Target Overview – Principle Office Group
The Trust was formed in 1988 as the Aust-Wide
Grosvenor Place Trust by Aust-Wide Management Ltd, a
manager of property trusts, in order to acquire a 30%
interest in Grosvenor Place. The Trust initially consisted
of 264 units of $1M cash each and by way of a 2:1 split
was changed to 528 units of $500,000 each in August
1988. The Grosvenor Place interest was acquired in
August 1988 for $243M.Aust-Wide Management Ltd was
placed in receivership in 1992. Consequently, Aust-Wide
Management Ltd resigned as manager on 06/08/1992,
and after Duesburys Corporate Services Pty Ltd acted as
interim manager, Heine Management Ltd was appointed
manager on 30/12/1992.
In February 1993 unitholders voted to amend the Trust
Deed so as to permit the Trust to be listed on ASX.
The Trust listed on ASX on 08/04/1993.
Effective 17 October 2002, the company changed its
name and code to Principal Office Fund (POF).
An Acquisition Plan
Why did WBC want to carry out plan to acquire BT
Funds electronics? And is it reasonable?
These questions are appearing when we think of such
deal. The following discussion elaborates some of the
reasons why WBC eager to acquire the BT Funds. The
successful merger creates value greater than the value
of each company combined.
As for BT Funds there are at least two major reasons
why BT Funds is so attractive, such as synergistic value
and the strategic value.
Synergistic value
PUT IN PIC FROM PG 13 BT Synergistic Value
ACQUISITION Based on the benefits, which may be derived from
putting the two businesses together, these might
related to:

• The leveraging of economics of scale, not only on

the leadership position in Funds and Wealth
Management

• Cost saving, principally from rationalising premises,

reducing duplication operating costs when the two
companies are combined. Eg. No longer need two
Human resource, finance, IT function and two head
office.

Strategic Value
The strategic values are both advantageous for BT and
WBC. WBC has been quite keen on gaining competitive
advantage in the wealth and funds management
business. For BT, which has lost both reputation and
performance of its funds in the past two years. The
following are the main reasons according to CEO David
Morgan for the acquisition of BT Funds Management.
• Broaden customer relationships
• Improve wealth management position
• Drive operational efficiency
• Embed a high performance culture
• Build corporate reputation

After the acquisition of BT, WBC is expected to become

the fourth largest retail fund manager, second largest
wrap/master trust provider, and sixth largest corporate
super provider.

Write about what kind of merger it is??

Valuation