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Mergers and Acquisitions Assignment


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

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 Introduction
David Morgan, Chief Executive Officer In recent years crashing markets and a stalled
Philip Chronican, Chief Financial Officer economic recovery many financial institutions have
David Clarke, Group Executive, BT been involved in merging and/or acquiring companies
Financial Group to increase their market value. Recent examples of
Leon Davis, Chairman Mergers & Acquisitions in Australian financial
Phil Coffey, Group Executive, Westpac institutions are National Australia Bank acquiring MLC,
Institutional Bank 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).
Westpac Banking Corporation The discussion will incorporate aspects of the
transaction such as market values, synergy, acquisition
ASX Code: WBC process, and integration issues.
Formerly: Bank of New South Wales,
01/10/1982. Some of the figures used in this report are obtained
Listing Date: 31/01/1962 from Westpac Banking Organisation. Also the data
used is obtained from the various presentations by
Head and Registered Office POF and WBC at the time of the acquisition.
Level 25, 60 Martin Place, Sydney, NSW, 2000
Overview of the Funds Management Industry
Internet: 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
Auditor: Pricewaterhouse Coopers have deserted equity-weighted managed funds.
This is the reason why a lot of small and big fund
Principal Activity mangers have been acquired by large financial
The provision of financial services including institutions such as the BIG FOUR BANKS in Australia.
lending, deposit taking, payments services,
$434 million net inflow compared dismally with the
investment portfolio management and advice,
$1.2 billion that flowed into managed funds in the
unit trust and Superannuation fund management,
nominee and custodian facilities, insurance, December 2002 quarter and the $3.1 billion figure for
services, consumer finance, leasing, general the March quarter last year.
finance, foreign exchange dealing and money Fund managers have been experiencing an outflow of
market services. 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


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

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.
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.
Principle Office Fund
The Commercial Bank of Australia Ltd was established in
ASX Code: POF, since 17/10/2002 Melbourne in 1866 and by 1890 had branches in all of
Formerly BT Office Trust (BTO) the mainland colonies. In 1912, operations were
16/10/2002 expanded to New Zealand, and in 1962, the Bank's
Grosvenor Trust (GTT) 07/03/1997 savings bank activities commenced. Diversification
Listing Date:8/04/1993 focused on financing operations with the establishment
of General Credits Ltd in 1956, a financier engaged in
Head and Registered Office the provision of leasing, instalment mortgage and
Level 15, 2 Chiefly Square Sydney NSW project financing and factoring; and C.B.A. Finance
2000 Holdings Ltd (51%), a listed New Zealand public
Internet: company. Through other subsidiaries, its operations
included unit trust management, travel and nominee
Auditors: Pricewatehouse Coopers services, general insurance and insurance broking.

Principal Activity Target Overview – Principle Office Group

Investment in commercial office buildings
in Australia.
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
Substantial Shareholders manager on 30/12/1992.
JP Morgan Nominees Australia Limited
(10.1%) In February 1993 unitholders voted to amend the Trust
RBC Global Services Australia Nominees Deed so as to permit the Trust to be listed on ASX.
Pty Ltd (13.7%)
Cogent Nominees Pty Limited (5.5%)
The Trust listed on ASX on 08/04/1993.
Queensland Investment Corporation
Effective 17 October 2002, the company changed its
AMP Limited (5.8%)
Barclays Global Investors (5.0%) name and code to Principal Office Fund (POF).
Lend Lease Corporation Ltd (5.1%)
National Australia Bank Limited Group An Acquisition Plan
Westpac Banking Corporation (10.9%) 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

• 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

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??