ASB takes the softly, softly approach with Sovereign
One of the most intriguing plays in the financial services industry rationalisation game is ASB Bank's successful $235 million takeover of Soverei.
Tuesday, March 30th 1999, 12:00AM
One of the most intriguing plays in the financial services industry rationalisation game is ASB Bank's successful $235 million takeover of Sovereign.
The move is curious because it is a bank taking over an insurance company. Up until this transaction the merger and acquisition game was being played by like-minded companies. That is insurance companies buying insurance companies. It's also interesting as Sovereign was shopped around to all potential buyers, yet in the end there was only one company wanting the business - ASB Bank. Other transactions, such as the sale of Norwich Union's insurance and funds management business, and the upcoming sale of BT Funds Management, all feature aggressive bidding once the for sale sign goes up.
ASB Bank managing director Ralph Norris says the bid was not a rescue bid, rather Sovereign is a good fit for ASB and it gives the bank a platform to become a broader based financial services company. Also giving strength to ASB's case was the early support shown for the bid by Sovereign's two founding shareholders, Chris Coon and Ian Hendry.
Another of the other interesting aspects about the deal is that it isn't the normal old, wham-bam-thank-you-mam sort of takeover.
Most takeovers follow a conventional bang 'em together approach. That is the target company is taken over, then it is absorbed into the operations of the new owner and - theoretically - benefits flow from increased economies of scale and staff layoffs.
Norris says in the case of 80 per cent of mergers a lot of value is lost through this "aggressive" direct integration approach and the winners are usually the shareholders of the target company.
With Sovereign ASB is taking a conservative, softly, softly approach.
"We want to run Sovereign autonomously, we don't want to jam it together as per the standard bancassurance model," Norris says. "We are more keen to see that evolve rather than crash right into that upfront."
He says the two organisations will be integrated at the group level, but at the company level they will be run separately.
However, changes are inevitable and in the future full integration is on the cards. That can only take place once the cultures and strategies of the two organisations have been refined. He says trust and communication levels have to be built up between the people within the two organisations and they have to go through this building process so people will work more closely over a period of time.
At this stage there is a "group level objective and commitment to achieve certain levels of synergy and certain levels of cross selling."
Currently ASB has put together a group of senior executives, headed by general manager management services Mike Walsh, to identify projects the two organisations can work on jointly to increase the value of Sovereign to the group. Several areas where changes are likely are where both companies operate including mortgage processing and insurance business, and all areas, including operational issues such as Sovereign's reassurance practice, are up for review.
Norris says there are excellent opportunities for cross-selling products as there is not as much overlap in customer bases (ASB 800,00, Sovereign 175,000) as one would expect.
One area Norris is saying there won't be any changes is in Sovereign's relationship and reliance on intermediaries to sell product.
The distribution strategies of the two companies are quite different, ASB tends to prefer the direct approach while Sovereign has a strong reliance on intermediaries.
Norris says ASB realises the importance of the intermediary network, and it won't be looking to change that relationship.
"We are aware Sovereign has a very good relationship with advisers and brokers and we don't want to put that at risk," he says.
"We are buying something that has a very successful formula so it would be pretty arrogant of us to come and say we have another formula that will work better. What we want to do is to build on what is a very good platform and capture the benefits that we have identified with regard to products and process.
"The fact of the matter is that we value the intermediaries so there's no way we are going to do anything which puts that at any substantial risk."
Norris acknowledges the takeover " has got it's challenges and we don't underestimate those challenges, but we are confident that we will do it."
He predicts that next part of the financial services merger and acquisition tango will see more banks and insurance companies coming together.
He is also clear the ASB acquisition is all about a "diversified growth strategy". ASB has been the fast growing bank in New Zealand and it intends to use Sovereign to help keep a grip on that position.
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