IFL Insignia Financial Ltd

Australia's competition regulator continued its opposition to National Australia Bank Ltd.'s (NAB) proposed A$13.3 billion bid for wealth management company rival AXA Asia Pacific Holdings Ltd. (AXA.AU) on Thursday, dealing a heavy blow to the bank's plans to become the country's largest wealth manager.

The latest development in the complex plan by Australia's fourth-largest bank to split the regional assets of the affiliate of French insurer AXA SA (AXAHY) also likely stalls AXA's Asian expansion plans but may open the door for spurned suitor AMP Ltd. (AMP.AU) to resuscitate its bid, after NAB's efforts to overcome the regulator's concerns fell short of the mark.

The Australian Competition and Consumer Commission maintained its April 19 rejection of what would be the biggest deal in Australia's financial services history, arguing it would crimp competition in the market for supply of retail investment platforms--internet portals that link retail investors with the wide range of investment products that fund management companies provide.

ACCC Deputy Chairman Peter Kell said in a statement that undertakings proposed by the bank and AXA APH to onsell the target's fledgling investment platform North to a smaller local wealth manager, IOOF Holdings Ltd. (IFL.AU), "do not provide sufficient certainty that the ACCC's competition concerns will be addressed".

Because IOOF lacks the infrastructure needed to make North a competitive force to NAB's Navigator and other market participants' platforms in its own right, NAB had also promised to provide IOOF with financial support and technical expertise, and to channel business its way for three years.

However the ACCC said because NAB and AXA APH have not agreed to include the distribution network of financial planners or to sell the financial products that currently support the North platform to IOOF, there was "considerable uncertainty" that IOOF could become an effective competitor to the combined NAB-AXA.

"The undertakings as proposed place a heavy reliance upon IOOF having sufficient distribution capability to provide an effective competitive constraint upon existing key players in the foreseeable future," said Kell.

Under NAB's proposal, 55% owner AXA SA would retain the lucrative Asian assets of AXA APH, while NAB would pay minority shareholders either A$6.43, or 0.1745 NAB shares and A$1.59 for each AXA APH share and take ownership of the Australian and New Zealand businesses. NAB won the necessary support of AXA APH's independent directors in December, trumping a lower cash and shares bid from AMP, which would also see the target split along the same geographic lines.

Shares in AXA APH fell sharply on open, and at 0340 GMT were down 8.6% or 47 cents at A$4.97, with Goldman Sachs saying NAB is now likely to throw in the towel on its bid.

"In our view, the most likely option is for NAB to walk away and pursue an organic acquisition strategy of advisors rather than a large acquisition," Goldman Sachs analyst Ben Koo said in an early note to clients.

NAB shares rallied on the outcome, up 3.8% at A$24.87, and while Koo said it is possible the bank could challenge the decision or seek to include financial planners in the deal with IOOF, it still may not change the outcome.

"In the near term, fears of a large capital raising will now dissipate for NAB however M&A uncertainty will remain an overhang until NAB clarifies its response to the ACCC decision," said Koo.

NAB said earlier it is considering the implications of the decision and will update the market "as soon as possible".

Unsurprisingly, most of the other major players in the deal also said they would take some time to consider their position before commenting on next steps.

A spokesman for AXA SA said the French parent was disappointed with the ACCC findings but will review the decision more fully before making further comment, while AXA APH said in a statement that it "notes" the decision but a spokeswoman wasn't immediately available for further comment.

For its part, AMP said it welcomed the decision and continues to see AXA APH as an attractive strategic target but sees no urgency to make any quick moves. A spokeswoman for AMP said whether the group will seek fresh talks with AXA SA is "a decision for another day".

Goldman Sachs analyst Ingrid Groer said AMP "is most likely to play it tough and try to transfer the pressure onto the AXA APH board" that rejected its November offer of 0.6896 AMP shares and A$1.92 cash for each AXA APH share.

Groer said AMP has indicated it won't move to an all-cash offer nor push its bid, which has already been cleared by the competition regulator and is currently valued around A$5.37 per AXA APH share, much higher, so is unlikely to win the support of the target.

"Although, this offer will remain on the table and AXA APH shareholders may begin to pressure the board if the stock sells off and the price begins to languish at much lower levels," she said in a note to clients. AMP shares are down 3 cents at A$5.01.

Meanwhile, AXA SA is likely to be "very frustrated and very keen to find a way to get its hands on the Asian assets," said Groer, which could see AXA SA either assist AMP in bumping up its offer or even engineer a break up itself.

-By Bill Lindsay, Dow Jones Newswires; 61-2-8272-4694; bill.lindsay@dowjones.com

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