Principal "Over" Down Under?

Sunday evening Westpac Banking confirmed an agreement to pay A$900 million ($486 million) for most of fund manager BT Financial Group from Principal Financial.  In a press release Principal said the deal also included a future contingent payment of up to A$150 million (about $80 million), based on Westpac’s future success in growing retail funds under management.

In Australia, Westpac conducted due diligence on the Banker Trust Australia operations in 1999 when it competed against Principal to buy the business from Deutsche Bank.  At that time Principal paid A$2.1 billion for BT Financial.

The acquisition gave Principal a solid entrée in the expanding Australian market, where the government compels workers to save 9% of their income for retirement . To date, more than A$500 billion has been accumulated through pension contributions, with another A$500 billion expected to flow into the system in the next three years, according to Dow Jones.

“Under” Performance

However, recently BT’s relative underperformance in Q2 has led to a US$2 billion net cash outflow, according to the report.  At the same time, operating revenue slumped US$14.8 million, largely reflecting a drop in investment management fees.

Principal Financial Group Chairman, President and Chief Executive Officer J. Barry Griswell said the move was made “with a view toward focusing the company’s resources, executing on core strategic priorities and meeting shareholder expectations,” according to a press release.

Changing Dynamics

Griswell acknowledged that “Changing market dynamics since our acquisition of BT, including industry consolidation, have led us to conclude that clients and staff will be best served under Westpac’s ownership. There is a natural fit given the geographical focus of the business; furthermore, clients will continue to benefit from BT’s proven client service model, plus Westpac’s expanded portfolio of wealth management products and services, enhanced technology and scale.”