French got a bargain, then made us a branch office

By Stephen Mayne
January 18, 2008

This long campaign piece ahead of the 2001 Axa AGM was first published in Crikey but it didn't manage to lift the vote much above 1%, which was no surprise given the French parent controls 51%.

What has happened to the old National Mutual really is quite tragic for Melbourne and Australia.

To start with former managing director Geoff Tomlinson and finance chief Steve Somogyi sold the business for a song to the French in 1995 who injected $1.1 billion for control. There are some management insiders who argue that the boys did a terrific job marketing the business to the French.

However, when you consider that Nat Mut used to dwarf Colonial Mutual and the latter was sold for $8 billion to the Commonwealth Bank, you quickly realise what a dreadful thing the board and management did.

The Australian's commentator Mark Westfield was absolutely right to hammer NatMut back in 1995 for not selling more of its lucrative Hong Kong operation to provide the desperately needed capital in Australia. Then again, you can argue that the board and management of the old NatMut managed to destroy the Australian franchise over the past 15 years.

Axa have done their level best to not add any value to National Mutual since buying it but have still doubled their money after paying $1.25 a share and now sitting on a stock trading at just below $3. It would appear that Axa accepted the terms of the original buyout and sat back and followed the existing board's strategy. That was until Les Owen's appointment which appears to be the final condemnation of the old NatMut board and management. The French are finally starting to exert a bit more influence over a company which was demonstrably going nowhere.

Smedley thinks poorly of Thommo and Somogyi

Colonial's former boss Peter Smedley is no fan of what Thomlinson did at NatMut. After taking his $25 million package from Colonial, Smedley agreed to take the reins at healthcare and logistics group Mayne Nickless on the condition that Tomlinson and Somogyi be shown the door. You see after finally having a gutful of the French, Thommo resigned and had joined Mayne Nick as a non-executive director and he'd helped recruit Somogyi as finance director. Thommo's resignation from Mayne was dressed up as a conflict of interest problem he had as chairman of a company called Medweb, in which investors have dropped about $50 million. The reality is that Smedley insisted he go.

Let's now go back a little further in time and let a Crikey contributor take up the story. He was responding to the piece on the website where we take some credit for the sudden retirement of long-time CEO Eric Mayer after we really stuck the boots in at last year's AGM.

"I share your pleasure at Eric Mayer's departure. A poll was taken at last year's AGM, but the results were never made public. I suggest that proxies were necessary to get him home.

His departure is 17 years overdue. There are many in the old National Mutual who believe that his actions as NSW manager indicated his likely future activities as chief executive from 1983-1990.

The market share war with AMP was by no means the only reason for the need for AXA to bail out the company. The cost of overseas expansion in the UK and the US has never been revealed. In UK the existing business (funds exceeding $1 billion in the mid 1980s) was merged with Schroeder Life, but the merged fund was sold for less than the amount paid for Schroeder. In the US the purchase price and capitalisation necessary for the Integrity Life group was about double the price obtained when the business was sold. These two exercises cost hundreds of millions of dollars.

This year's annual report reveals that the Trustee company has been sold. This exercise cost tens of millions of dollars through a dispute involving management of an estate involving the Nicholas family. At the time of takeover the chairman was Hilton Nicholas!

The Hong Kong result was a fluke.

Perhaps Mayer's greatest achievement was to pass the blame on to his successor Gilbert Michael Joseph Hoskins! Hoskins had been one of Mayer's direct reports in the 1980s and succeeded him in 1990, only to be sacked in 1992. Nobody shed any tears on Hoskins' departure.

I note that a second executive director has been appointed. National Mutual's disasters occurred when there were 5 executive directors.

I will be voting for you in preference to the executive director.

Regards, anon

We showed this email to an Axa insider and this is a summary of what he said in response:

"NM started to go down hill when Eric set the target of beating AMP in sales. He paid too much for distribution in the late 1980s and set the scene for poor product design and over aggressive interest rates on capital guaranteed policies in the early 1990s. Eric was very popular as an individual and this made it difficult for senior managers to oppose him. The international strategy was an absolute shambles with the exception of Hong Kong, which is benefitting greatly at the moment from the fall in US interest rates. This is because more than half its assets are in US bonds. As far as the operations are concerned the Hong Kong business has slipped to number three behind AIA and Manulife and Axa and Les Owen have taken a closer grip on the business since the departure of Terry Smith.


Gil Hoskins picked up a $3 million package when he was punted in 1992 by former chairman Athol Lapthorne who was a real pillor of the Melbourne establishment and was the chairman who signed on the dotted line with the French and then promptly retired and handed the reins to former Coke boss Dean Wills.

Wills is a jovial 20-stone giant whose greatest skill seems to be keeping multinational head offices happy. The Atlanta boys at Coke loved malleable Dean and it seems that the French took a similar liking to him.

It is good that the French have decided to cull the board and there are quite a few lads still up there who are responsible for the fire sale to Claude Bebear's charmers at Axa.

For instance, chairman Rick Allert has been there since 1993 so minority shareholders who saw half their company sold for one quarter of its current value have no reason to be enamoured with him.

Former IBM Australia CEO Brian Finn joined in the 1992 when the old NMLA was in the midst of its liquidity crisis after Mark Westfield's damning Four Corners report saw about $300 million march out the door.

Even the Hawke government decided Mel Ward wasn't the man to keep leading the monolithic Telecom Australia back in 1991, yet NMLA happily signed him up in 1993 and he said "oui" to the French francs rather than flogging off more of Hong Kong.

It is good that to of the other "oui" men, Eric Mayer and 69yo Tony Manford, have both decided to go gracefully at this year's AGM. It is interesting that this has the unfortunate affect of putting the independent directors in the minority which is further evidence of the French tightening their grip.

Unfortunately, there has been a procession of different Axa reps on the board which has hardly been good for stability. The same goes for the recent procession of CEOs with three in three years after the proposed merger with MLC fell apart.

It was the pig-headedness of the French that blew up the well-conceived proposed merger between National Mutual and MLC back in 1998. They wanted the combined company to be run out of Paris.

On the day before the deal was called off, National Mutual shares were trading at $4.08. Thommo remembers it well because it did nothing but went south after that.

You see, Thommo failed to build up either the funds management business or NatMut's distribution channel during his tenure. He was all about cutting and slashing. Compare NatMut's asset management business with something like Perpetual which has seen its share price go from $4 to $36 over the past four years. The boat Axa missed on asset management has been the single biggest disaster. Because MLC was stronger on both the funds management and distribution side, it made great sense to put the two businesses together, but petty management rivalries, egos and the Paris-factor conspired against the NatMut shareholders.

MLC was valued at about $2.5 billion in this deal and then its parent company Lend Lease turned around two years later and sold it to the NAB for a whopping $4.5 billion. Lend Lease held an EGM to approve a $2 billion return of capital last year and Crikey stood up and proposed a toast to the French for scuppering the earlier deal and allowing Lend Lease shareholders to collect a further $2 billion.

The French promised the Keating and Howard governments that they would do all sorts of wonderful things for National Mutual, including keeping the name and using it as the vehicle through which it would expand throughout Asia.

Well, the FIRB officials are totally pissed off with Axa and tell any multinational that comes along that the French have left Canberra very jaundiced about it.

Shell is getting the third degree from FIRB over its Woodside takeover offer at the moment because neither Axa or Rio Tinto have remained bound to their commitments.

Whilst Rio have run off to be headquartered in London and butchered the old CRA presence in Melbourne, you can hardly complain when they plough $7 billion into Australia in the year 2000.

There has been no such support from the French which have been busily shuffling some of the nice businesses out of the old NatMut and into the French parent. However, the Asian asset management business that was sold did appear to carry an attractive price and the Alliance joint venture on domestic funds management should hopefully lift performance even though it dilutes the Melbourne-based company's stake in the action.

Let's first quote from Ralph Willis's press release dated January 31, 1995, when he talked about the Australian insurance giant "raising additional capital which will enable National Mutual to pursue new opportunities in Australia and the Asia Pacific region". Can anyone think what these have been? The sale of Axa's Singaporean life insurance business to the old NatMut is all that we can come up with.

One of the four conditions spelled out by Ralph read as follows:

"AXA transferring its existing Asian life insurance interests to National Mutual Holdings and pursuing its Asia Pacific life insurance business strategy through that company."

Do you remember how Axa tried to renege on this with the China licence but then gave their poor Aussie cousins a small proposed slice of the equity, which contributed to the licence designated for an Australian insurer going to Colonial which used Paul Keating to lobby whilst NatMut relied on Bob Hawke.

The French have now also shut the old NatMut out of the action in Japan too but there are some Australian shareholders who are relied about this because the French paid $US2 billion for a bankrupt life insurance office in the most insured market in the world. Axa also pulled out of the Korea life market, leaving it to its Aussie offshoot so the Japan market is now the only Asian operation that Les Owen's team is not running.

The French also told FIRB that they intended to keep the National Mutual brand but then reneged on this promise three years later. Dean Wills is right when he points out that the company was no longer a Mutual, but the name change and accompanying $24 million campaign merely served to reinforce the whole branch office syndrome.

Lastly, we have the issue of this supposed $1 billion court claim by investors in a lucrative scheme that reportedly allowed policyholders to opt between different investment categories depending on performance.

It is interesting to note that Mallesons have very recently been dumped as Axa's Australian lawyers. Rumor also has it that five partners invested in the scheme.

So far only that blatant opportunist Rodney Adler and Eastern Suburbs (Sydney) dentist Peter Keller - the scheme's manager - have "outed" themselves as being party to the litigation.

Peter Kell from ASIC is getting his head around the issue. Axa appears to be trying to build a case that Dr Keller was not a qualified advice giver and that the prospectus he developed was not lodged with the appropriate authorities.

From one perspective, this is another example of why National Mutual needed a Les Owen as CEO.

Axa need to be far more activist as fund managers

Crikey's platform in running for the board is that they need to become far more activist as a fund manager. In other words, they should be getting up at the AGMs and asking questions rather than people like Crikey.

However, it should be noted that behind closed doors they have apparently shown a reasonable understanding of governance issues. Crikey's beef is that they should be doing this in public.

In relation to its own governnance, NatMut/AXA has previously shown quite a good understanding of the issues.

For instance, at the time of the demutualisation, shareholders got to approve Tomlinson's options package. Contrast that with AMP which arrogantly gifted $20 million worth of shares to George Trumbull without asking their shareholders because they claimed it was not legally required.

NatMut/AXA's disclosure and explanation in its annual reports/notices of meeting etc have usually been pretty shareholder friendly.

In terms of how you vote, I would, of course, advise that you put a tick next to my name simply to send the message that you want to see Axa Asia Pacific Holdings standing up at AGMs across the country and asking sensible questions.

It is disappointing that the Australian shareholders Association have recommended a vote against Crikey even though they know I have absolutely no chance of getting on. Surely the ASA can understand the proposition that a few votes for a candidate backing institutional activism will send a message to the board. The ASA is effectively advising its members to vote against shareholder activism which is not what they are meant to be about.

It is also disappointing that Axa have done the old "no room in the inn" number and said there is four candidates for three spots. It is good that Eric Mayer and Tony Manford are bailing out but surely it is a matter for the shareholders how many directors sit on the board.

If you only want to vote against one of the four candidates I would recommend Mel Ward who didn't set the world on fire at Telstra and has been on the board since 1993. Alternatively, you could vote against Brian Finn who has had an extra year having joined in 1992. Crikey does not mind having the finance director on a board but for those of you who think this is undesirable, please vote against Matthew Slatter's election to the board.

The only controversial resolution to be voted on by shareholders is the proposed increase in directors fees from $900,000 to $1.2 million a year. Given that the board only paid its non-exec directors $672,000 last year and is also reducing them in number by two, why on earth do you need a 33 per cent increase in the maximum payable.

If you've managed to get to the bottom of this very long piece then you are obviously very interested in the affairs of Axa and we'll probably see you at the meeting on Feb 15. Sorry it has taken a while to get this piece up on the site and I'd be interested in your feedback on any issues that come out of it.

Cheers, Stephen Mayne
Candidate for the Axa board