Westpac Banking Corporation is undertaking a sell-down of its 59% shareholding in BT Investment Management, or BTIM, to between 31% and 40%
Both BTIM (BTT.ASX) and Westpac (WBC.ASX) share holders have two days left to take up a retail offer for the purchase of BTIM holdings at offer price $8.20.
Offer closes on the 10th of July 2015 (this Friday). Offer provides shareholders of either entity (WBC or BTT) opportunity to take up either a 600 or 1200 share allotment in BTIM (Sans brokerage and transaction fees).
Westpac purchased BTIM in 2002 in a bid to leverage their banking reach to drive lateral distribution between both businesses. This was common practice amongst major institutions and drove a consolidation of industry players.
A number of macro-factors have now made this laterally integrated business structure less financially appealing.
More stringent capital requirements imposed on banks have seen many banks searching for assets to "cash-in" to reduce balance sheet debt exposures. Westpac have signalled this as their sole motivation for offer.
Recent regulatory reform has also squeezed value out of these lateral associations as the conflicted nature of integrated business models does not align well with industry reforms. A best-interest duty and a regulator spotlight has institutions searching for more profitable and sustainable business models.
Finally, performance by BTIM has seen strong growth over both one and three year time frames. Westpac's decision to sell a sizeable chunk of their exposure in BTIM will realise some of this recent value. The below chart tracks the rolling 12 month performance of BTIM.
BTIM, as a funds management firm, is susceptible to stock market movements. Its income is directly related to funds under management. If you're bullish on the stock market outlook (which we are not), then this stock provides a tail wind to market performance.
Current share price (8.765 @ time of writing) sees an offer premium of approximate 7%. Offer closes on the 10th and share allotments become available on the 16th of July. There is some concern that the offer premium will narrow in this window.
With the above in mind, offer acceptance should be judged on the investment merit of BTIM, irrespective of corporate action ministrations.
BTIM is in the midst of bringing a new investment and administration platform to market. This has being the subject of investment in the 100's of millions. A lot will ride on the performance, functionality and pricing of this platform to drive fund inflow growth in the future. With fin-tech disrupter's now gaining market share in droves in the platform space, if BTIM's platform falls short of expectations, then this could signal significant reductions in future inflows. This is especially concerning if it prompts Westpac to come up with their own investment solution.
With the above factors in mind, Snowgum Financial Services is not recommending that shareholders take up this offer. Independent research house Morningstar has a neutral outlook on participation in the corporate action.
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