IOOF Holdings and SFG Australia enter into scheme implementation agreement

* IOOF and SFGA have entered into an agreement under which IOOF proposes to acquire all of the shares in SFGA via a Scheme of Arrangement
* SFGA shareholders will be offered 0.104 of an IOOF share for each SFGA share which implies a value per SFGA share of $0.90 (based on IOOF’s 90 day VWAP to 15 May 2014)
* The Scheme is a highly complementary transaction which significantly enhances the position of the combined group
* The combined business will be the third largest advice business in Australia by Funds Under Advice (FUA) (NOTE 1) and one of the largest listed wealth management businesses in Australia
* The proposed transaction represents an implied 24.6% premium to SFGA’s 90 day VWAP to 15 May 2014
* SFGA’s Board unanimously recommends that its shareholders vote in favour of the Scheme, and SFGA Directors intend to cause any SFGA shares in which they have a relevant interest to be voted in favour of the Scheme, subject to an independent expert concluding that the proposed transaction is in the best interests of SFGA shareholders and in the absence of any superior proposal
* SFGA shareholders can elect to receive the Scheme Consideration wholly in IOOF shares. IOOF is also making available a cash alternative (NOTE 2), subject to a maximum cash component of $100 million in aggregate
* IOOF intends to maintain the current SFGA brand strategy, operating model and client proposition
* The proposed transaction has a total value of $670 million on a 90 day VWAP basis and is in line with IOOF’s long term growth strategy

IOOF Holdings Limited (ASX: IFL) (“IOOF”) and SFG Australia Limited (ASX: SFW) (“SFGA”) announce that they have entered into a Scheme Implementation Agreement (“SIA”) under which IOOF proposes to acquire all of the shares in SFGA via a Scheme of Arrangement.

Under the terms of the proposed transaction, SFGA shareholders will be offered 0.104 of an IOOF share for each SFGA share they hold. IOOF is also making available a cash alternative, subject to a maximum cash component of $100 million in aggregate. The cash equivalent will be calculated based on the volume weighted average price (“VWAP”) of IOOF shares over the 10 trading days immediately before the Scheme Meeting.

The offer represents an implied valuation multiple of 18.5x (NOTE 3) SFGA’s underlying net profit after tax for the 12 months ended December 2013 and an implied value per SFGA share of:
* $0.90, based on IOOF’s 90 day VWAP to 15 May 2014;
* $0.88, based on IOOF’s 60 day VWAP to 15 May 2014;
*$0.87, based on IOOF’s 30 day VWAP to 15 May 2014; and
*$0.85, based on IOOF’s closing price on 15 May 2014, being the last trading day prior to the announcement of this transaction

This corresponds to an attractive premium for SFGA shareholders of:
* 24.6% to SFGA’s 90 day VWAP to 15 May 2014;
* 21.6% to SFGA’s 60 day VWAP to 15 May 2014;
* 19.8% to SFGA’s 30 day VWAP to 15 May 2014; and
* 15.8% to SFGA’s closing price on 15 May 2014

SFGA’s Board unanimously recommends that SFGA shareholders vote in favour of the Scheme, and SFGA Directors intend to cause any SFGA shares in which they have a relevant interest to be voted in favour of the Scheme, subject to an independent expert concluding that the offer is in the best interests of SFGA shareholders and in the absence of any superior proposal.

Directors believe that the offer creates an opportunity for SFGA shareholders to own shares in one of Australia’s leading financial services companies with diversified earnings, increased scale and liquidity, and a strong track record of delivering significant shareholder returns.Several SFGA Directors who are also SFGA shareholders, and another SFGA shareholder, have entered into call option deeds giving IOOF the right to purchase, in aggregate, approximately 16% of the issued share capital in SFGA in certain circumstances. The details of the call option deeds will be disclosed in a notice of change of interests of substantial holder to be lodged by IOOF with the ASX in due course.

IOOF expects that in FY16 the proposed transaction will be 8.3% earnings per share (“EPS”) accretive including synergies for IOOF on an underlying cash NPAT basis and should generate pre tax synergies by FY16 of approximately $20 million p.a.

The Managing Director of IOOF, Christopher Kelaher, commented on the proposal as follows:

“This transaction is a continuation of IOOF’s ongoing, long-term strategy of pursuing value accretive acquisitions.”

“The addition of SFGA will increase IOOF’s Financial Advice and Distribution segment considerably. This segment currently accounts for 14% of our revenue which will rise to an expected 30% of revenue after the transaction. The combination of the two businesses will strengthen IOOF’s capabilities and will enhance our High Net Worth proposition.”

On the direction of the business going forward, he said:

“It will be business as usual for SFGA’s clients. Under IOOF’s ownership there will be no changes to SFGA’s client facing brands, operating model and client proposition. I look forward to welcoming SFGA shareholders, advisers, accountants and employees to IOOF.”

Mr. Tony Fenning, Managing Director of SFGA commented:

“SFG Australia is fully committed to establishing a high quality, integrated and independent financial advice, wealth management and accounting services group that offers our clients an alternative to the major banks. At the corporate level it has been our responsibility to find the best resources, best products and services to support our leading advisers and joint venture partners. Our acquisition last year of Lachlan Partners further strengthened our offer with the addition of accounting, self-managed super funds and tax capabilities for our clients”.

“This potential merger is another positive step in continuing our journey to be the best advice group in Australia and leveraging the scale of IOOF to continue to offer our clients the best advice together with our range of “best of breed” products and services to implement their requirements.”

Tony Fenning will remain with the combined group as a Senior Advisor. In addition, Tony Fenning, Jim Kilkenny and Sam Gannon, all current Board members of SFGA, have agreed to join a new Advisory Forum which will advise the SFGA businesses following the merger.

SFGA is expected to hold a shareholder meeting in early August at which SFGA shareholders will vote on the proposed transaction.

NOTES:
1. Source: Company filings (FY2013), Money Management top 100 dealer group survey 2013, company website.
2. The value of the cash equivalent will be calculated based on the VWAP of IOOF shares over the 10 trading days immediately before the Scheme Meeting.
3. Based on IOOF’s 90 day VWAP to 15 May 2014.