Mergers and Acquisitions Assignment

EXECUTIVE SUMMARY

Mergers and acquisitions are one of the popular topics in business today, since they characterize the new economy: pressure of global competition, development of technology and disappearance of country boundaries. The purpose of this thesis is to study the valuation processes and approaches in mergers and acquisitions by analyzing the Westpac Banking Corporation/BT Funds Management case. Discounted Cash Flow and Comparable Multiples approaches are emphasized in the valuation of the companies.

Based on the valuation this report will identify the benefits for Westpac acquiring BT Funds Management.

The report first introduces the general conditions of merging, in the Funds Management industry recently and admits that there are some limitations in the report because the merging is going on now and was hard to collect comprehensive information.

Management Structure at Westpac

David Morgan, Chief Executive OfficerPhilip Chronican, Chief Financial

OfficerDavid Clarke, Group Executive, BT

Financial GroupLeon Davis, Chairman

Phil Coffey, Group Executive, Westpac Institutional Bank

Westpac Banking Corporation

ASX Code: WBCFormerly: Bank of New South Wales, 01/10/1982.Listing Date: 31/01/1962

Head and Registered OfficeLevel 25, 60 Martin Place, Sydney, NSW, 2000

Internet: www.westpac.com.au

Auditor: Pricewaterhouse Coopers

Principal ActivityThe provision of financial services including lending, deposit taking, payments services, investment portfolio management and advice, unit trust and Superannuation fund management, nominee and custodian facilities, insurance, services, consumer finance, leasing, general finance, foreign exchange dealing and money market services.

Introduction

In recent years crashing markets and a stalled economic recovery many financial institutions have been involved in merging and/or acquiring companies to increase their market value. Recent examples of Mergers & Acquisitions in Australian financial institutions are National Australia Bank acquiring MLC, Commonwealth Bank acquiring Colonial First State and Westpac Banking Corporation over BT Funds Management; Rothschild; and Hastings.

This paper concentrated on the Westpac Banking Corporation (WBC) acquisition of BT Funds Management from The Principle Office Group (POF). The discussion will incorporate aspects of the transaction such as market values, synergy, acquisition process, and integration issues.

Some of the figures used in this report are obtained from Westpac Banking Organisation. Also the data used is obtained from the various presentations by POF and WBC at the time of the acquisition.

Overview of the Funds Management IndustryIn recent years due to poor market performance the funds management industry in Australia has largely suffered. Due to this investors are more cautious and have deserted equity-weighted managed funds. This is the reason why a lot of small and big fund mangers have been acquired by large financial institutions such as the BIG FOUR BANKS in Australia. $434 million net inflow compared dismally with the $1.2 billion that flowed into managed funds in the December 2002 quarter and the $3.1 billion figure for the March quarter last year.Fund managers have been experiencing an outflow of investors rather then inflow as was the case 8 years ago, in 1995 when managed funds were the investment choice of sophisticated investors.

Acquirer Overview – Westpac Banking Corporation

The Bank was established in 1817 as the Bank of New South Wales, the first bank in Australia. The Bank's Savings Bank subsidiary was formed in 1955. The savings bank was merged with the trading bank on 01/10/1993.

In 1957, a 40% interest was acquired in the major financier, Australian Guarantee Corporation Ltd (AGC), which was increased to 52.5% during 1972. In 1978, this holding was further increased to 76.8% following a three-for- five share exchange offer. Subsequently in 1988, the Bank made a successful bid for all the outstanding shares in AGC. (C.B.A.).

Principle Office Fund

ASX Code: POF, since 17/10/2002Formerly BT Office Trust (BTO) 16/10/2002 Grosvenor Trust (GTT) 07/03/1997Listing Date:8/04/1993

Head and Registered OfficeLevel 15, 2 Chiefly Square Sydney NSW 2000 Internet: www.principalofficefund.com.au

Auditors: Pricewatehouse Coopers

Principal ActivityInvestment in commercial office buildings in Australia.

Substantial ShareholdersJP Morgan Nominees Australia Limited (10.1%)RBC Global Services Australia Nominees Pty Ltd (13.7%)Cogent Nominees Pty Limited (5.5%)Queensland Investment Corporation (8.4%)AMP Limited (5.8%)Barclays Global Investors (5.0%)Lend Lease Corporation Ltd (5.1%)National Australia Bank Limited Group (7.5%)Westpac Banking Corporation (10.9%)

The Bank's name changed to Westpac Banking Corporation (Westpac) occurred on 01/10/1982, following the merger of the Bank of New South Wales with The Commercial Bank of Australia Ltd. The merger was effected by a share exchange involving the issue of two Wales $1 shares plus $1.50 cash for each C.B.A. $1 ord. stock unit held; holders of $20 pref. stock units were offered $20 cash per pref. stock unit.

The Commercial Bank of Australia Ltd was established in Melbourne in 1866 and by 1890 had branches in all of the mainland colonies. In 1912, operations were expanded to New Zealand, and in 1962, the Bank's savings bank activities commenced. Diversification focused on financing operations with the establishment of General Credits Ltd in 1956, a financier engaged in the provision of leasing, instalment mortgage and project financing and factoring; and C.B.A. Finance Holdings Ltd (51%), a listed New Zealand public company. Through other subsidiaries, its operations included unit trust management, travel and nominee services, general insurance and insurance broking.

Target Overview – Principle Office Group

The Trust was formed in 1988 as the Aust-Wide Grosvenor Place Trust by Aust-Wide Management Ltd, a manager of property trusts, in order to acquire a 30% interest in Grosvenor Place. The Trust initially consisted of 264 units of $1M cash each and by way of a 2:1 split was changed to 528 units of $500,000 each in August 1988. The Grosvenor Place interest was acquired in August 1988 for $243M.Aust-Wide Management Ltd was placed in receivership in 1992. Consequently, Aust-Wide Management Ltd resigned as manager on 06/08/1992, and after Duesburys Corporate Services Pty Ltd acted as interim manager, Heine Management Ltd was appointed manager on 30/12/1992.

In February 1993 unitholders voted to amend the Trust Deed so as to permit the Trust to be listed on ASX.

The Trust listed on ASX on 08/04/1993.

Effective 17 October 2002, the company changed its name and code to Principal Office Fund (POF).

An Acquisition Plan

Why did WBC want to carry out plan to acquire BT Funds electronics? And is it reasonable?

These questions are appearing when we think of such deal. The following discussion elaborates some of the reasons why WBC eager to acquire the BT Funds. The successful merger creates value greater than the value of each company combined. As for BT Funds there are at least two major reasons why BT Funds is so attractive, such as synergistic value and the strategic value.

PUT IN PIC FROM PG 13 BTACQUISITION

Synergistic ValueBased on the benefits, which may be derived from putting the two businesses together, these might related to:

The leveraging of economics of scale, not only on the leadership position in Funds and Wealth Management

Cost saving, principally from rationalising premises, reducing duplication operating costs when the two companies are combined. Eg. No longer need two Human resource, finance, IT function and two head office.

Strategic ValueThe strategic values are both advantageous for BT and WBC. WBC has been quite keen on gaining competitive advantage in the wealth and funds management business. For BT, which has lost both reputation and performance of its funds in the past two years. The following are the main reasons according to CEO David Morgan for the acquisition of BT Funds Management. Broaden customer relationships Improve wealth management position Drive operational efficiency Embed a high performance culture Build corporate reputation

After the acquisition of BT, WBC is expected to become the fourth largest retail fund manager, second largest wrap/master trust provider, and sixth largest corporate super provider.

Write about what kind of merger it is??

Valuation