NAB song sheet

NAB understated the apparent purchase price of $885 million for Aviva Australia by around $60 million.

In addition to the $825 million headlined by NAB in two announcements yesterday the bank must pay $60 million in follow-on costs.

NAB contorted the value follow-on payment in its investor pack, styled as a net asset adjustment to be paid post completion, and the exact level subject to closer review. Aviva spelled out its estimate of the value of this component clearly.

Aviva also takes a $40 million dividend, leaving a $100 million difference in the claimed values of the seller and buyer.

The bank styled the  value as 1.1 times the embedded value of the the acquired business.

NAB reported the net profit of the acquired businesses of Aviva at $93 million in 2008, down from $100 million in 2007.

The life insurance arm produced a profit of $40 million in 2008, down from $72 million in 2007. The investment platform lifted profit to $23 million in 2008 from $20 million in 2007. (A reversal of "negative investment experience" explains a large chunk of the reported profit for 2008.)

The main asset purchased by NAB is the Navigator investment platform, with 4300 financial planners part managing the affairs of 350,000 clients on this service. NAB put the funds under advice through Navigator at $12 billion. MLC already has $30 billion in funds under advice.

Financial planners use the platforms to reduce the work in selecting investments from a menu of options and also to cater to reporting.

The second asset purchased is the life business that reported inforce premiums of $256 million at December 2008, NAB said. MLC reported inforce premiums of $878 million at the same date.

NAB may claim leadership in the life insurance sector by melding two businesses. The bank will hold a top two ranking in various investment product segments surveyed by Plan for Life.

Most cost savings, estimated by NAB at $50 million a year, are likely to be on the life insurance side and fewer on the platform side, where NAB for now will have to invest in the development of existing MLC systems and Aviva's Navigator platforms.

Revenue synergies claimed by NAB from the takeover are more ephemeral but estimated at around $20 million a year. Ideas listed in an investor presentation yesterday include increased flows into NAB deposit and transaction products as well as margin loans.

This hope tends to confirm that one point of the ownership of platforms established to assist independent financial planners is that they are intended to steer customers of planners to the investment products of the platform owner.

NAB obviously hopes to generate more demand for MLC product selection among the planners reliant on Navigator.