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IOOF acquisition of ANZ OnePath on shaky ground after further delays

Emma Rapaport with AAP  |  16 Jan 2019Text size  Decrease  Increase  |  
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Embattled wealth group IOOF says its contract covering buyout of ANZ's pension and investments business OnePath has been delayed by at least three months, amid doubts over the deal's future.

In a stock exchange filing on Tuesday, IOOF (ASX: IFL) said its deal to buy part of ANZ's pension unit (ASX: ANZ) would now take place after Australia's third-largest bank had formally split its pension assets, which IOOF expects to occur by 1 July.

When the companies announced the deal in October 2017, they said they expected it to be wrapped up by the end of March this year.

The contact has been amended to provide more time for the trustee to decide on the deal and to provide ANZ more input on the deal.

Despite IOOF's confidence that it will eventually be successful in acquiring OnePath Pension and Investments business, Morningstar financial services analyst Chanaka Gunasekera is unconvinced.

In a research note, he said the regulator’s actions seeking disqualification orders against five of the company's key officers, in addition to imposing additional licence conditions, make it unlikely that the trustee, OnePath Custodians, will approve the successor fund transfer to IOOF-related parties.

"Under the circumstances, we believe it will be difficult for the pensions and investments trustee to conclude such a successor fund transfer is in the best interest of members," he said. 

Gunasekera also expects next month’s royal commission final report, which will cover IOOF's disastrous appearance at the fifth round of hearings, to deliver sharp criticism and further damage IOOF's chances of receiving the trustee’s and ANZ Bank's consent to the acquisition.

IOOF Royal Commission

The banking royal commission put IOOF under the blow-torch in August 2018

Gunasekera believes yesterday's announced contract changes were designed to delay the decision on the deal until after the publication of the royal commission final report, the government's and opposition party responses, and after the federal election, tipped for mid-May.

Royal commission takes its toll

Though many merger-and-acquisition deals experience delays, the new timeline shows the impact the royal commission is having on major decisions of the country's top lenders, even before the inquiry delivers its final report.

IOOF was among the worst-hit companies by the inquiry, which aired claims that IOOF used member assets when compensating them for losses allegedly caused by the wealth manager or their service provider.

The evidence caused financial watchdog the Australian Prudential Regulation Authority (APRA) to recommend banning IOOF's top two executives from running the wealth manager, prompting the pair to step down in December and the company's shares to drop.

IOOF has also agreed to several licence conditions required by APRA to improve its corporate governance.

ANZ, in a separate statement, said the contract amendments would allow it to sell its OnePath Life business to Zurich Financial Services Australia regardless of the IOOF delay. An ANZ spokesman declined to comment about the time frame of the IOOF sale.

Shares of ANZ were up 0.67 per cent at $25.71 at 2pm Sydney time, and IOOF was up 0.54 per cent at $5.59. Morningstar held IOOF's fair value at $5.00 per share following the acquisition update.

. Emma Rapaport is a reporter for Morningstar Australia.

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