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The Sydney Morning Herald

RSA sell-off of Australian operations under a cloud

Author: Anthony Hughes
Date: 31/10/2002
Words: 438
          Publication: Sydney Morning Herald
Section: Business
Page: 26
The future of Australia's mid-sized funds managers is again in a state of flux, amid talk yesterday that protracted sale negotiations for London-based Royal & Sun Alliance's Australian financial services operations have hit a brick wall.

Australasian life insurer Tower had been the front-runner in long-running talks to buy the operations, freeing capital for the UK-based life and general insurance group. But it is understood the sale of the operations, including fund manager Tyndall and RSA's life and master trust businesses, will not proceed.

Failure to proceed with the deal puts another cloud over the future of Tower, which is still to locate a permanent chief executive and has found it difficult to convince its shareholders to support such a large strategic move.

It also comes at a time when the value of funds management groups has dipped in line with weak markets calling into question the aggressive moves by banks to buy wealth management businesses.

One possible outcome of the deal was that Royal & Sun's senior Australian executives, including chief executive Michael Wilkins, or head of financial services Dennis Fox, would run the combined entity.

Mr Fox yesterday declined to comment on market speculation but said: ``We are looking at methods in which the parent can get some capital."

While it was a tough market and there was uncertainty about ``who owns what", the group was confident it would see improved wholesale and retail inflows to its products, Mr Fox said.

Tyndall, with about $5 billion in funds under management, has been strongly recovering its managed fund investment performance in the past two years and has been regularly placed among the top three share funds by returns. But it has struggled to attract inflows because of the legacy of earlier years of under-performance.

The possibility of a takeover by Tower or another player has also left many investors unwilling to commit money because of the prospect that Tyndall's deep value- based style could be altered.

Still, last month Tyndall clawed back some support from research houses, when Lonsdale Securities recommended the group's managed funds, citing its improved investment process under head of Australian equities Bob Van Munster.

Tower appeared to have been able to come up with a self-funding mechanism for the purchase by securitising parts of the Royal & Sun life operations, substantially reducing the purchase price from original indications of around $1 billion.

Tower's share price had come under pressure from weak investment markets and concern that it would have to raise equity capital from investors. Yesterday it rose 10c to $3.10.

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