Former critic changes view

When Westpac originally tried to buy BT Funds Management two years ago one of the biggest critics of the proposed deal was Morningstar which was then headed by Graham Rich.

However, Rich (who has left Morningstar) is supportive of the current $1.1 billion deal.

He says his original opposition to the deal came about because key people inside BT were totally opposed (and some say fought against) Westpac buying the business from Deutsche Bank.

If the deal had proceeded then these people would have left the business, thus undermining its value.

Back in June 1999 he said: "Westpac is known to be unacceptable to BT personnel and a sale to Westpac is therefore likely to cause severe disruption to BT’s style and staffing."

"Once staff receive their bonuses on 4 June and the golden handcuffs are removed, there is every likelihood of a mass exodus of investment staff in a Westpac scenario.

"The disruption would be a disaster for investors," Rich said. "In such circumstances we would have to radically downgrade the qualitative ratings underlying BT’s Morningstar Star Ratings.

The difference now is that many of these people have now left BT, and some of those which are there will leave after the proposed transaction is completed towards the end of this year.

Back then Rich said there was a cultural mismatch between the two organisations, and putting them together would be like "mixing oil with water."

However, he is supportive of the current deal saying it is good for investors. He questions comments that Westpac is getting a good deal, buying BT for about half the price it originally offered to pay two years ago.

He says BT is quite a different business. In the past two years it has suffered significant funds outflow, particularly in Australia and the performance of some of its key funds have fallen. The New Zealand based business has been much stronger.

• In its announcement last week Westpac said that BT’s chief executive Ian Martin, chief investment officer Gary Symons and chief operating officer Graeme Fowler, will be leaving the group. Reports in Australia say that BT’s head of equities, Marcus Fanning, and head of domestic fixed interest, David Fraser, have yet to decide whether they will continue with the group.