UPDATE: AMP, AXA SA Start Selling AXA APH Bid To Investors

AXA SA (12062.FR) and AMP Ltd. (AMP.AU) Tuesday stepped up their efforts to sell to investors a joint A$12 billion bid to buy AXA Asia Pacific Holdings Ltd. (AXA.AU) amid expectations that they will have to increase the offer to win over shareholder support.

They were sounding out institutional shareholders about their views Tuesday morning, people familiar with the situation said, after AXA Asia Pacific's independent directors dismissed their offer--the biggest takeover bid in Australia in around two years--as inadequate. AXA APH was also calling institutional holders to take views, investors said.

Despite AMP and AXA SA describing their initial offer as "compelling", some analysts and investors said while the deal makes strategic sense, the offer would likely have to value AXA APH around A$6 a share, or A$12.4 billion, to secure support.

AMP and AXA SA said Monday they were teaming up in a cash and shares bid for AXA APH, which valued the group at A$5.34 a share based on Friday's closing share prices. But shares in AMP have risen since the offer was made, making the proposal more valuable at around A$5.79 a share.

AXA APH shares closed Tuesday up 7 cents, or 1.2%, at A$5.77. AMP shares closed up 4.4% at A$6.39, boosted by speculation that the wealth manager could itself become a target.

Under the deal, AMP would buy AXA APH, including the 53.9% owned by AXA SA, and keep the Australian and New Zealand businesses. It would then sell the Asian operations to Paris-based AXA SA for around A$7.73 billion.

"I think to get the AXA Asia Pacific investors over the line, particularly on the retail side, they'll need to go a bit higher, so...the high A$5 (level) toward A$6" might be sufficient for board support, said Peter Vann, head of research at Constellation Capital, which owns AXA Asia Pacific shares.

 
   Last Roll Of Dice

Citi analysts, along with analysts from RBS and Merrill Lynch, agreed that an offer around A$6 a share should be enough to win support, and may be hard for AXA APH's independent directors to turn down.

Under the existing complex offer, which was conditional on board support, each minority AXA APH shareholder would receive 0.6896 AMP shares and around A$1.38 cash for each of their shares. The cash component of the offer varies with movements in the A$/US$ exchange rate but will be at least A$1.2071 per share.

A deal would make strong strategic sense for AXA SA, giving it a strong platform for growth in Asia, analysts said. Many believe the French group, which announced plans Monday to raise EUR2 billion through a rights issue, has the firepower for an increased offer.

There is also strong strategic rationale for Sydney-based AMP, and the group also has scope to increase its share of the offer, analysts said.

"A tie-up with AXA APH is likely to be the last roll of the dice in terms of further meaningful consolidation opportunities in the Australian wealth management sector," Citi analysts said.

 
   AMP A Target?

"We believe this bid could potentially flush out a bidder for AMP," Morgan Stanley analysts said in a note.

"We sense that AMP buying AXA Australia and New Zealand may be perceived as a poison pill given the large market share and as such may accelerate any strategic interest that may exist in AMP," Morgan Stanley said.

Southern Cross Equities described AMP as extremely vulnerable to a takeover offer from one of the major banks and said "it would be the perfect time for a predator to put an alternative to AMP shareholders."

One investor agreed that a bid for AMP is a possibility, but ascribed a low chance of it eventuating.

"I think there is one deal left," the investor said. "The ACCC (Australian Competition and Consumer Commission) would permit AMP to take over AXA, and they would permit one of the four major (banks) to take over AMP or AXA, but they wouldn't allow them to take over AMP if AMP has already taken over AXA," the investor, who did not want to be identified, said.

There is no consensus view on which bank is most likely to make a play for AMP, "but it is very clear that the four majors find this business model very attractive," he said.

-By Lyndal McFarland and Rebecca Thurlow, Dow Jones Newswires; 61-3-9292-2093; lyndal.mcfarland@dowjones.com

(David Rogers in Sydney contributed to this article)

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