Another US firm is backing out of foreign market expansion: Des Moines, Iowa-based Principal Financial Group has reached a definitive agreement to sell the bulk of BT Financial Group to Westpac Banking Corp. an Australian bank. Principal will retain the BT Office Trust, an office -pace real estate trust, as well as the international fixed income and currency asset management businesses.
Westpac is making an initial payment of $500 million and has agreed to a future contingent payment of up to $80 million. Principal has estimated its after-tax proceeds at $750 million, which includes cash payments from Westpac, tax benefits and the discontinuation of debt-related costs from the acquisition of BT in 1999. Principal originally paid $1.4 billion for BT, according to Jeff Rader, a Principal spokesman.
This is not Westpacs first attempt to buy BT; the company had originally tried to acquire BT in 1999 but was outbid by Principal, according to a report in the Des Moines Register. Contraction of company assets and a poor outlook for equity markets have driven down the value to less than half of its 1999 price tag, Rader said.
At the time, Principal saw potential in Australias corporate superannuation, or defined contribution, market. "As we went out and looked at markets where we could grow our global asset accumulation business, one of the things we looked for was governments that mandated retirement contributions," Rader said. Australia mandates 9% employee contributions and has many small- and medium-sized businesses, which are part of Principals core market in the U.S., Rader said.
However, since then, a combination of factors has changed BTs market outlook. In particular, the independent financial adviser channel in Australia has changed as banks have bought up many firms and converted to them to a captive sales force, Rader said.
Barry Griswell, Principals CEO, said that the decision to sell BT only three years after acquiring it stemmed from the companys interest in focusing on its core businesses of domestic defined contribution and other growth in Latin America and Asia, including Hong Kong, India and Japan. The company expects to invest proceeds from the sale in existing businesses, smaller strategic acquisitions to build scale and share repurchases.
Principal anticipates that the sale will close by the end of the year, with the company recording an after-tax loss of $350 million.
Westpac has $101 billion in global assets and is among the top 10 largest capitalized companies in the Australian Stock Exchange, according to the companys Web site. BT has approximately $16 billion in assets under management. The Principal has $120 billion