Planner falls into CBA net

COMMONWEALTH Bank has taken advantage of a looming shake-up of financial planning rules by pushing ahead with the

By InvestSMART · 31 Aug 2011

By InvestSMART ·
31 Aug 2011

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COMMONWEALTH Bank has taken advantage of a looming shake-up of financial planning rules by pushing ahead with the

$373 million acquisition of Count Financial, one of the biggest networks of financial planners.

The offer, which has been endorsed by Count's board, comes on the heels of the Gillard government this week detailing the first round of reforms under its Future of Financial Advice package.

The changes, which seek to scrap commission-based payments and increase regulation, are already driving consolidation among smaller planners.

The friendly deal will see Count founder and executive chairman Barry Lambert and his wife Joy emerge with a $127.5 million windfall from selling their substantial stake in the stock exchange-listed business to the bank.

The acquisition is also likely to be a key test for new Australian Competition and Consumer Commission boss Rod Sims.

It marks the first major deal by a bank since the competition watchdog blocked National Australia Bank's $13.3 billion move on wealth manager AXA Asia Pacific.

The transaction, if it proceeds, is expected to increase CBA's adviser numbers to more than 1850 from 1220 at present. This would rank it second behind AMP by total number of advisers. AMP's takeover of AXA Asia Pacific last year saw it emerge with 4000 aligned planners.

The transaction will also deliver to the bank Count's near 18 per cent stake in the country's biggest finance broking network, Mortgage Choice. Count also has a stake of about 8 per cent in another advisory firm, DKN Holdings.

Count ranks as the Australia's largest franchise network of independent financial planners. The

mid-sized firm's focus has been to train accountants to sell financial products, giving it more than $14 billion in client funds and loans under advice.

Under the deal, CBA will pay $1.40 in cash for each Count share, representing a 64 per cent premium for Count's average trading price over the past three months. The takeover will be by way of a scheme of arrangement.

Count shares yesterday shot up 36? to close at $1.42.

At $373 million, the offer represents a valuation multiple of 14.6 times Count's most recent annual net profit of $25.6 million.

Mr Lambert and other board members have unanimously recommended that Count shareholders vote in favour of the offer, in the absence of a superior proposal emerging.

The recommendation is subject to an independent expert concluding that the offer is in the best interests of Count shareholders.

CBA is being advised by Goldman Sachs while Count is being advised by JPMorgan.

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Frequently Asked Questions about this Article…

What is the Commonwealth Bank acquisition of Count Financial and how big is the deal?

Commonwealth Bank (CBA) has put forward a A$373 million takeover offer for Count Financial. The proposal is a cash offer of A$1.40 per Count share by way of a scheme of arrangement. Count’s board has endorsed the friendly offer, which values Count at about 14.6 times its most recent annual net profit.

How much are Count Financial shareholders being paid per share and what premium does that represent?

CBA is offering A$1.40 in cash for each Count share, which represents roughly a 64% premium to Count’s average trading price over the prior three months. After the announcement, Count shares jumped around 36% to close near A$1.42.

Why is Commonwealth Bank buying Count Financial — what does it gain?

The deal would quickly boost CBA’s financial advice footprint by adding Count’s advisers and client base. Count brings more than A$14 billion in client funds and loans under advice, plus near 18% ownership of Mortgage Choice and about an 8% stake in DKN Holdings. The acquisition is also being done as industry-wide reforms prompt consolidation among smaller planners.

How will the takeover change CBA’s number of financial advisers and its market ranking?

If the transaction proceeds, CBA’s adviser numbers are expected to rise from about 1,220 to more than 1,850 advisers. That increase would move CBA to second place by total adviser numbers behind AMP, which has around 4,000 aligned planners following its AXA Asia Pacific deal.

How are the government’s Future of Financial Advice (FOFA) reforms influencing this takeover?

The article says FOFA reforms — including moves to scrap commission-based payments and tighten regulation — are already encouraging consolidation among smaller planning firms. CBA’s timing looks aimed at taking advantage of that industry shake-up as advisers and networks adjust to new rules.

Will regulators review the CBA–Count Financial deal and could competition be an issue?

The takeover is likely to draw competition scrutiny: the article describes it as a key test for incoming Australian Competition and Consumer Commission chief Rod Sims. It’s the first major bank deal since the ACCC blocked NAB’s A$13.3 billion move on AXA Asia Pacific, so regulatory review is a realistic prospect.

Have Count’s directors recommended the offer and what approvals are needed?

Count’s founder and executive chairman Barry Lambert, other board members and his wife Joy have unanimously recommended shareholders vote in favour of the offer — but that recommendation is conditional. It’s subject to an independent expert concluding the offer is in Count shareholders’ best interests and the absence of any superior proposal. The acquisition is structured as a scheme of arrangement, which requires shareholder and court-related approvals.

Who is advising each side on the takeover and what are notable background details?

Commonwealth Bank is being advised by Goldman Sachs, while Count Financial is being advised by JPMorgan. The deal would deliver a substantial windfall to Count founders Barry and Joy Lambert (reported around A$127.5 million from their stake) and marks a significant consolidation move in the adviser market.