IOOF under fire at AGM on MLC deal, languishing share price

IOOF bosses defend $1.44bn MLC acquisition as shareholders voice their frustration at share price decline, dilution from raising.

IOOF Chief Executive Renato Mota in Melbourne. Stuart McEvoy/The Australian.

IOOF has suffered a near-20 per cent protest vote over its remuneration report, and was forced to defend its acquisition of MLC as shareholders at its annual meeting voiced anger over the $1.44bn deal.

Facing accusations that the MLC deal was a “disgrace” and the wealth manager had “butchered” the share price, IOOF chairman Allan Griffiths said he could see why shareholders were frustrated.

“I can understand your disappointment in how the share price has languished in recent times … what we will do is make sure we maintain reasonable dividends for shareholders as we extract (efficiencies from the transaction),” he said.

IOOF in August announced it had agreed to buy National Australia Bank’s wealth arm, MLC, as it sets its sights on becoming the nation’s largest financial advice business.

The deal is subject to approval by the Australian Competition and Consumer Commission and the banking regulator, and has been criticised by some shareholders who say IOOF overpaid for the wealth business and will struggle to deliver on its predicted synergies.

Integration risks, the prospect of cost blowouts and adviser exits have all weighed on sentiment since the announcement, with IOOF’s share price yet to fully recover from the more-than 20 per cent drop it took immediately after the deal was disclosed.

IOOF would return value to shareholders through higher dividends, Mr Griffiths said on Wednesday, as he expressed the board’s intention to pay out dividends at the upper end of its 60-90 per cent payout range. For the 2020 year its payout range stood at 75 per cent, he said.

Addressing IOOF’s dramatic share price decline, from above $10 per share in early 2018 to the current price of less than $4, Mr Griffiths said a lot had happened over the prior three years.

“We had a royal commission, we had to defend a court case and class actions. We have now stabilised the business to a point where we could complete ANZ P&I acquisition and we are on the cusp of completing the MLC acquisition.”

The wealth manager expects it will take four years to extract the synergies from the MLC deal and would gradually rebuild the share price over time, he predicted.

Earlier at the meeting, IOOF chief executive Renato Mota said a bigger and better IOOF, following the MLC integration, would be at the forefront of industry transformation.

He said he recognised the impact on existing shareholders of how it funded the $1.44bn acquisition.

A $1.04bn raising announced in August to help fund the acquisition was priced at $3.50 a share, a 24.4 per cent discount to IOOF’s share price before the ­announce­ment, with a non-renounceable entitlement offer open to retail investors sitting alongside a $452m institutional placement.

The retail offer was heavily under-subscribed, with the $3.50 offer price sitting higher than the share price following its immediate 22 per cent drop on the news of the deal.

IOOF has faced extensive criticism, including from the Australian Shareholders Association, over the extreme dilution the raising dealt existing shareholders.

“The accelerated non-renounceable entitlement offer of 1 for 2.09 shares at $3.50, complemented with a share placement plan, resulted in minimal retail acceptances and significant share dilution,” the ASA said.

Mr Griffiths said the board had considered a range of factors in determining the offer structure and concluded the underwritten entitlement offer was optimal and provided the most certainty of success.

The wealth manager expects to deliver in excess of 20 per cent earnings per share accretion in future years, underpinned by $150m per annum of targeted pre-tax synergies by the third full year of ownership.

“It’s only through extensive diligence, negotiation and by leveraging prior experience that one can assess the merits of these transformational opportunities on balance,” Mr Mota said of the deal.

Shareholders expressed their anger through protest votes, with the remuneration report copping a 19.5 per cent protest vote.

The re-elections of directors John Selak and Elizabeth Flynn to the board were also hit with protest votes, with 17 per cent of shareholders voting against Mr Selak’s re-election and more than 24 per cent voting against Ms Flynn’s return to the board.

Justifying the $1.44bn price tag for MLC, Mr Selak, who sat on the due diligence committee for the acquisition, said he believed the assumptions for the business were realistic and perhaps even conservative.

“In looking at a deal of this size it’s not just the headline price – it’s also the risks … and on a risk-weighted basis the purchase of MLC on the terms negotiated was in the best interests of IOOF shareholders,” he said.

Shareholders at the meeting were also voting on the granting of performance rights to Mr Mota.

Embarrassingly, just an hour before the meeting began, IOOF put a notice out on the ASX saying it had miscalculated the number of performance rights due to the CEO.

“The board determined to allocate rights to the total value of $1.2m to Mr Mota, however a methodology error has been identified in the calculation of the number of performance rights this equates to.

“The number of performance rights in respect of which approval is sought is less than that stated in the resolution. There is no change to the total grant value of $1.2m.

“Approval is being sought to allocate 239,597 performance rights to Mr Mota, which is less than the 276,081 stated in the notice of meeting,” IOOF said.

IOOF shares closed Wednesday’s session up 3.77 per cent at $3.85.