2nd UPDATE: NAB Satisfied With Due Diligence On AXA APH

National Australia Bank (NAB.AU) is a step closer to taking over AXA Asia Pacific Holdings Ltd. (AXA.AU) after the bank's examination of the wealth manager's books found nothing to derail its A$13.3 billion proposal.

NAB's A$6.43-a-share all-cash bid--endorsed by the target's independent directors over a rival proposal from AMP Ltd. (AMP.AU)--was subject to a number of conditions including that it completed satisfactory due diligence. NAB and AXA APH said Friday that the due diligence has been completed.

"There were no adverse findings," said a NAB spokesman. "We remain committed to our proposal."

The proposal also requires that France's AXA SA (AXA), which owns 53.9% of AXA APH, agrees to buy the unit's Asian operations from NAB, leaving the Australian and New Zealand units to the local bank.

However, AXA SA is locked in an exclusivity deal with its bidding partner AMP until Feb. 6, meaning it can't begin discussions with NAB until then.

Under both the AMP and NAB proposals, AXA SA would acquire the Asian operations of AXA Asia Pacific for A$9.13 billion. Therefore details such as the divvying up of assets are likely to be front and center when AXA SA starts talking with NAB. Industry participants have said there could be sticking points where there is a cross over between Asian and Australian operations, such as with the Australian-based ipac financial advice division, which also operates in Hong Kong.

NAB's examination of AXA APH's financial position was one of the triggers for the target yesterday forecasting a dramatically improved financial performance, said a person familiar with the situation.

AXA APH said in a filing to the Australian Securities Exchange on Thursday that it expects its 2009 annual net profit after non-recurring items to beat analysts' expectations by coming in at about A$675 million, swinging from a steep loss of A$278.7 million in 2008.

John Heagerty, an analyst at Royal Bank of Scotland, said AXA APH's profit estimate exceeded the market consensus by 20% and could flush out a higher offer from AMP.

"AMP only retains exclusivity with AXA SA until Feb. 6, so we anticipate a move before that date," he said in a report Friday.

However, he said the uniformity of outperformance forecast across the wealth manager's divisions suggests aggressive cost-cutting in the fourth quarter of 2009, a strategy that may not be sustainable.

The acquisition of AXA APH would propel either AMP or NAB into a clear market-leading position in the Australia and New Zealand life-insurance and wealth-management industries. The buyer would have the largest network of financial advisers in Australia.

Australia's competition regulator, which is reviewing both proposals, has begun seeking submissions from market participants on the NAB proposal.

In a market inquiries letter on its website Friday, the Australian Competition and Consumer Commission said there are five key areas of overlap between NAB and AXA APH: insurance, pensions, financial planning and advisory services, investment platforms and funds management.

Among the areas the ACCC is investigating is the impact of the proposed merger on fund managers that don't operate retail platforms or have aligned financial planning networks. The regulator is seeking opinions on the potential for a combined NAB and AXA APH to restrict the access of competitors to retail platforms.

It is also looking at the degree to which a merged NAB-AXA APH would be able to increase its dominance of the financial services market by bundling retail banking products with wealth management products.

-By Rebecca Thurlow, Dow Jones Newswires;

61-2-8272-4679; rebecca.thurlow@dowjones.com

(Bill Lindsay in Sydney contributed to this article.)

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