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
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