Challenger and AXA have agreed to trade business, with Challenger exchanging its financial planning division for AXA's closed annuities portfolio and a consideration of $100 million. The asset swap has been welcomed by industry observers, as it will allow AXA to free up capital and gain financial planners, while Challenger will reap scale benefits for its annuities.
In a recently announced deal, Challenger Financial Services Group is selling its financial planning division to AXA for $150 million. At the same time, AXA is selling its closed annuities portfolio to Challenger for $50 million. The net effect of this transaction is thus an asset swap, whereby Challenger trades its financial planning business for AXA's closed annuities business and $100 million. Analysts and the market have reacted positively to the deal, which is seen as being beneficial to both companies.
Challenger's financial planning division has been underperforming, and industry analysts have welcomed this chance for the company to divest such a non-core business, and instead gain scale and liquidity in closed annuities. Mike Tilley, chief executive of Challenger, stated that the deal will bring 17,000 annuities customer to the company. The $1.3 billion dollar portfolio from AXA brings Challenger's portfolio in annuities, allocated pensions and superannuation to $5.1 billion.
Moreover, AXA is considered to be a beneficiary of the deal. Industry observers have pointed out how AXA will gain clout in its distribution of financial planning services by acquiring Challenger's financial planning division, while at the same time freeing up capital that regulatory requirements would have mandated for its closed annuities business. Analysts have estimated that, if it had kept the portfolio, the regulatory requirements relating to it would have tied up more than $100 million dollars.
Both stocks closed higher following the announcement of the transaction. AXA gained almost 2%, while Challenger climbed 3.3%, despite revealing lower net profits for fiscal 2008 than the previous year. Some analysts have criticized Challenger for lacking transparency and for its complicated structure, and this deal will go some way toward simplifying and focusing the company's efforts.