Commonwealth Bank of Australia (ASX: CBA) has decided to unload its asset management business for the consideration of $4.1 billion. The sale has been made to Mitsubishi UFJ Financial Group based out in Japan. As a result of the deal, the bank’s wealth operations are likely to be reduced substantially. On October 30, 2018, CBA has made an announcement that it is unloading Colonial First State Global Asset Management or CFSGAM. However, the outside of the Australian boundaries, CBA’s this business is popular as First State Investments. The total consideration which has been decided represents that CFSGAM has been valued at 17.5x of its pro forma earnings which it had generated in 2018 i.e. $236 million. Post-tax, it means that the Commonwealth Bank of Australia would be gaining around $1.5 billion. This deal between CBA and Mitsubishi UFJ Financial Group is regarded as one of the major deals in regard to the overseas asset management buyout which has ever been done by the Japanese financial group.
The deal is expected to mark an end in the mid-2019 and this has to cross a number of regulatory hurdles in the US, United Kingdom, Singapore, Hong-Kong, Australia as well as Japan. Needless to say, the initial public offering or IPO of the CBA’s wealth management business would not be including its asset management business i.e. CFSGAM. Earlier this year i.e. in April 2018, CBA had announced its intentions to go for the IPO of CFSGAM and it was supposed to list on Australian Securities Exchange or ASX. The bank had planned to list the asset management business by 2018 end (calendar year). However, later on, in June 2018, the bank decided to go for the spin-off of the entire mortgage broking as well as wealth operations which included CFSGAM. As a result of the announcement of selling the asset management business, the spin-off would now be done of Colonial First State, Financial Wisdom, Count Financial as well as Aussie Home Loans. However, it would also include the companies in which CBA is having minority share and which are listed on the ASX namely Mortgage Choice as well as CountPlus.
Colonial First State Global Asset Management is into the business of investment management which has its operations globally. It also has offices spanning in the US, Europe as well as Asia Pacific regions.
Understanding Management View Points
The top management of Commonwealth Bank of Australia reflected favorable views in regard to the deal. The chief executive of CBA stated that its asset management business has witnessed a strong positive growth momentum for more than 18 years. Mitsubishi UFJ Financial Group is regarded as the leading asset managers in Japan and they have strong expertise in the business. CBA’s key official stated that employees, as well as clients of Colonial First State Global Asset Management, would be benefiting from the deal.
At the time of writing, Commonwealth Bank of Australia is trading at A$68.860 per share which reflects that it has witnessed the rise of A$0.700 per share or 1.027%.
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