Westpac Banking Group (ASX:WBC) announced this morning the intention to reduce its shareholding in BT Investment Management (ASX:BTT) from 59% to between 31% and 40%.
Macquarie and UBS were appointed by Westpac to handle the $412.5m selldown which will be facilitated by a fully-underwritten Institutional Offer of 55 million shares and a smaller Retail Offer of up to 27 million shares. The selldown will be treated as a cash earnings adjustment in Westpac’s full year 2015 results and is expected to generate a gain on sale of between $0.6bn and $0.7bn.
Shareholders of Westpac should feel positive about the move as it allows Westpac to “realise a part of the investment while still maintaining a significant interest in BT Investment,” according to CEO Peter King.
Whilst the sale is expected to put downward pressure on the shares of BT Investment Management in the short-term, both companies believe that it will bring significant benefits for BTT shareholders as well. “The transaction increases the proportion of BTIM’s shares that are readily tradable, improving liquidity and helping facilitate inclusion in key equity indices,” Mr King said. BTT shares are expected to remain in a trading halt until Thursday morning.
BTT also provided an updated on Funds Under Management (FUM) which has seen continuous growth so far this year. Between 31 March and 31 May FUM increased by $3.6bn to $80.7bn with net flows totalling $1.5nm. The company states that positive currency movements, strong demand for global equity products and a strong investment performance have contributed to the FUM growth.
Westpac shares have opened around 1% higher this morning and are currently trading at $32.07 as of 10:30am on Tuesday. Whilst all Australian banks have recently been sold off, Westpac has in fact underperformed the broader market over the past 12 months. WBC shares are down 7.32% in the past 12 months and 4.13% so far this year. However the capital return does not take dividend payments and franking credits into consideration. Whilst Australian banks will most likely face challenging conditions due to subdued economic growth, regulatory restrictions and general risks associated with the housing market, their shares continue to offer an attractive income opportunity which remains valuable in the current low interest rate environment.
Author: Simon Herrmann
Jun 16, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.