Austock in Intersuisse's sights

THE Singapore-backed Intersuisse Group has outlined plans to buy out the stockbroking arm of Austock Group.

By InvestSMART · 20 Dec 2011

By InvestSMART ·
20 Dec 2011

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THE Singapore-backed Intersuisse Group has outlined plans to buy out the stockbroking arm of Austock Group.

The move marks the end of the ambitious securities house that once promoted itself as a mini-version of Macquarie Group.

Intersuisse, a rival mid-size stockbroker, has entered into an exclusivity agreement to acquire Austock's security and corporate advisory business.

Any transaction will depend largely on the outcome of due diligence, to take place over the next month.

The Melbourne-headquartered Austock has held on-and-off talks with the privately owned Phillip Brokerage over recent months on a possible deal as conditions in local markets became tougher for all stockbroking firms. For Intersuisse, which specialises in resource and energy stocks, the acquisition will give it broader distribution for its Singapore-based backer, Phillip.

"This will give us substantially increased scale, which allows us to leverage Phillip's franchise in Australia," said Intersuisse deputy chairman Jonathan Buckley.

Austock has repositioned itself over the past 18 months as a mid to small-cap broking firm, as it tries to profit from niches ignored by larger players. It has been buffeted by the financial crisis, with two of its key clients, ABC Learning and Timbercorp, having collapsed.

The broker last year hired the former head of Bank of America-Merrill Lynch in Australia, Paul Masi, as its chief executive, and has since made several other hirings from banks such as Macquarie, Merrill Lynch and UBS. Austock posted a net profit of $4.5 million for 2010-11, swinging from a loss in the previous period. No dividend was paid.

Continued low trading volumes on the Australian Securities Exchange and a dearth of corporate equity capital markets activity have combined to cut revenue for the entire broking industry.

Austock confirmed as much yesterday when it released a financial update warning that brokerage income remained depressed, while several capital market deals had been dropped or delayed until next year.

The transaction would result in Austock remaining a listed company focused on its profitable property trust and small life insurance bond business.

But the slimmed-down business is widely expected to emerge as a takeover target.

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Frequently Asked Questions about this Article…

What is Intersuisse proposing to buy from Austock?

Intersuisse has entered an exclusivity agreement to acquire Austock’s securities and corporate advisory (stockbroking) business. The proposal covers Austock’s stockbroking arm rather than its remaining businesses.

Why is Austock selling its stockbroking arm to Intersuisse?

Austock has been operating in tougher market conditions with low trading volumes and weak capital-markets activity, which have depressed brokerage income. The sale would allow Austock to slim down and focus on its profitable property trust and small life insurance bond business.

How will the proposed deal affect Austock’s status as a listed company?

If the transaction proceeds, Austock would remain a listed company but concentrated on its property trust and small life insurance bond operations. The article notes the slimmed-down company is widely expected to become a potential takeover target.

What would Intersuisse and its backer gain from acquiring Austock’s broking business?

Intersuisse — which specialises in resource and energy stocks and is backed by Singapore-based Phillip — says the acquisition would give it substantially increased scale and broader distribution, enabling it to leverage Phillip’s franchise in Australia.

What are the conditions and timeline for the Austock-Intersuisse acquisition?

The parties signed an exclusivity agreement and any deal is subject to due diligence, which the article says is expected to take place over the next month. The final transaction depends largely on the outcome of that due diligence.

How has Austock performed financially recently and what does that mean for investors?

Austock reported a net profit of $4.5 million for 2010–11, swinging from a loss the previous period, but it paid no dividend. Management has repositioned the firm toward mid- and small-cap broking and made senior hires, while revenue from brokerage remains depressed due to low ASX volumes and fewer capital market deals.

Which people and firms are mentioned in connection with the deal and Austock’s strategy?

Key names in the article include Jonathan Buckley, Intersuisse’s deputy chairman, and Paul Masi, Austock’s chief executive and former head of Bank of America-Merrill Lynch Australia. Competitors and other firms referenced include Phillip Brokerage (the Singapore backer), Macquarie Group, Merrill Lynch, UBS, ABC Learning and Timbercorp (former Austock clients).

What investor risks are highlighted by the article about Austock and the proposed sale?

The article highlights risks such as continued depressed brokerage income, dropped or delayed capital-markets deals, loss of key clients in the past, and uncertainty around the proposed sale (pending due diligence). These factors could affect Austock’s short-term performance and make the remaining listed company a possible takeover target.