NAB and Axa undertakings may not be enough

The Axa share price rose five per cent yesterday on expectations that the undertakings the company and its suitor National Australia Bank have given the Australian Competition and Consumer Commission would be enough to win the regulator's approval for their merger.

But the proposal being put forward is anything but straightforward and is certainly no lay-down misere.

Last December NAB and Axa Asia Pacific entered into an agreement under which NAB would acquire Axa, retain the Australian and New Zealand businesses and sell the Asian businesses to Axa SA. NAB's offer managed to win the support of the Axa AP board, where an earlier bid from AMP could not.

In April the ACCC said it would oppose the NAB Axa deal, arguing that the proposed acquisition of Axa would remove a vigorous and effective competitor in the platform market.

The ACCC said Axa's innovative North platform (and the Bluedoor software on which it is based) would compete closely with NAB's Navigator platform in the market for retail investment platforms for investors with complex investment needs.

It concluded that "given the high barriers to entry, new entrants are unlikely to emerge that would be successful in providing an effective competitive constraint to existing key players."

The ACCC formed the view that the proposed acquisition would have the effect of substantially lessening, preventing or hindering competition in the Australian market for the supply of retail investment platforms.

Axa has given an undertaking to divest North in a sale to a rival superannuation and wealth management company, IOOF. The undertaking has a number of parts to it. The North products would be retained and continue to be issued by the current Axa issuers. IOOF would provide platform administration services to support those products.

NAB would provide exclusive rights to IOOF for the provision of platform administration services for the existing North products. NAB would not replicate or otherwise offer similar products to the North range for a period of three years.

NAB would provide funding for the development of enhancements to the Bluedoor system supporting the North platform. This development would provide the capability to administer certain IOOF products.

NAB would also fund platform enhancements already planned by Axa, such as direct equities, model portfolios, dollar cost averaging and term deposits.

Axa would provide IOOF with services to support North's transition to IOOF's IT system.

The aim of the NAB and Axa undertakings is to strengthen IOOF "as a viable, effective stand-alone, independent and long-term competitor for the supply of retail investment platforms for investors with complex investment needs."

The ACCC has to decide whether IOOF, a much smaller player then Axa, would have the muscle to develop the $1.4 billion North platform to be the "vigorous and effective competitor that would provide an effective constraint on market participants" that it is looking for.

It also has to determine whether the divestment outlined provides enough separation. A platform whose main business is servicing products sold by the merged NAB/Axa group may not provide enough competitive tension for the regulator's liking.