Pre-wedding Jitters Hit Nab, Lend Lease

Sydney Morning Herald

Saturday April 8, 2000

By ANTHONY HUGHES

Investor concerns about how much National Australia Bank would pay for Lend Lease's MLC life insurance and funds management arm, as well as what the seller would do with the estimated proceeds of up to $5 billion, saw shares in both companies drop yesterday.

A formal announcement on a full sale of MLC or a joint venture, possibly including a scrip issue to Lend Lease, is expected on Monday.

NAB shares fell 60c to $22.65 and Lend Lease 25c to $20.30 on speculation about the impact of the deal, after confirmation of a Herald report on Thursday.

Fund managers said the deal would be positive for NAB because it would use up excess capital, add to the product base for its distribution network of bank branches and remove concern about other mooted moves, including a bid for AMP.

One fund manager said: ``Just the fact it will get rid of some acquisition uncertainty is good for NAB shareholders. The supposed $21 bid for AMP unnerved me and a lot of other people in the market."

While a figure of up to $5 billion has been mooted were NAB to buy all of MLC, there is concern this may be too much given some analysts struggle to get a valuation above the $3.5 billion to $4 billion range.

MLC has $33 billion in funds under management and administration, according to its half-year accounts, while NAB has an estimated $21.8 billion.

The combination would rank it clearly as the third largest funds management business in Australia, though MLC would likely be run separately.

AMP also fell again yesterday, losing another 29c to $15.66 despite this week's board shake-up, including the resignation of chairman Mr Ian Burgess.

That Lend Lease appears to be considering a full sale has perplexed some analysts, who are unsure how the company can maintain its consistent record of profit growth without MLC and its high return on capital.

``MLC also produces a phenomenal tax-free dividend that keeps Lend Lease's tax rate down," one analyst said.

However, recent business tax changes have made the tax position of life insurance companies less clear and Lend Lease is still to outline what negative impact it sees on MLC's profits in the next financial year.

MLC, despite having a brand name considered in the same league at BT, is facing greater competition, lower margins and has a high technology spend.

If the sale releases more than $4 billion, Lend Lease may need to quickly find a home for it, and the most likely hunting ground would be for property funds management assets in the US and Europe.

``These guys obviously have something boiling in the pot overseas that has got a lid on it," one analyst said.

Lend Lease has gross debt of $2 billion and is keen to lower its interest coverage ratio. Lend Lease already has spent $1.6 billion in the past year on property-related acquisitions but has also been expanding its financial services business.

© 2000 Sydney Morning Herald

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