National Mutual Holdings Ltd. and Lend Lease Corp. are merging their Australasian life insurance and fund management subsidiaries to form a new financial services group.
The new group -- National Mutual/MLC -- is intended to rival current market leader AMP Society and thwart competition from abroad.
The merger, announced last month, is subject to formal approval by various federal government regulators. It will combine National Mutual Holdings' Melbourne-based subsidiary with Lend Lease's MLC Ltd., Sydney.
There will be two joint ventures: one running the joint life insurance and associated businesses (including superannuation and investment vehicles aimed at the retail market); and one operating the funds management business that largely serves the institutional market.
Based on Australian funds under management, the merged National Mutual/MLC group will have about A$49 billion of the overall funds management market, or 12.5%, with Sydney-based AMP Society holding about A$46 billion, 11.8% of the market, at the end of September.
After the merger, the group's insurance operations will rank it second only to AMP, with A$5.23 billion of annual in-force premiums plus single premium income. AMP had A$5.29 billion of premiums.
The merger, initially proposed by MLC, is driven largely by the two partners' view that they need increased size to compete in the Australian market. They point to the freeing-up of the superannuation fund market by the expected introduction of choice of funds for individual members.
In addition, they see growing competition from U.S.-based giants such as J.P. Morgan Investment Management Inc., Bankers Trust Co., Merrill Lynch & Co. Inc., Fidelity Investments and The Vanguard Group of Companies Inc., and world banks such as Barclays, SBC/UBC, Deutsche and ING.
National Mutual Holdings, Melbourne, the listed parent of the NM group, already is 51% owned by the giant AXA S.A. of France. National Mutual will hold 51% of the two joint ventures.
MLC will hold the remaining 49%, and will contribute the new chief executive, David Clarke.
John Schafer, asset consultant at InTech Asset Consulting, Sydney, said the merger might not have any immediate effect on larger superannuation fund trustees. That's because MLC, which holds the largest slice of the merged group's institutional business, concentrated more on smaller and midsized employers, offering a packaged product through pooled funds.
Geoff Tomlinson, National Mutual managing director, said the merger represents the chance to gain a quantum step forward in size of operations.
The merger is likely to produce initial annual cost savings of about A$200 million from the two life insurance operations.
There will be less savings on the funds management side, where the two groups have very different styles that are expected to continue. MLC uses a manager-of-managers approach, with a large core of passively managed funds, while National Mutual uses a research-driven, active management style.
The merger will not include National Mutual's Asian operations or its health insurance business. Nor will it include Lend Lease's property management arm.