In morning trade the National Australia Bank Ltd (ASX: NAB) share price is pushing higher after announcing a deal with IOOF Holdings Limited (ASX: IFL).
At the time of writing the NAB share price is up almost 1% to $18.06.
What did NAB announce?
This morning the banking giant announced that it has entered into a sale and purchase agreement to sell 100% of its MLC Wealth business to IOOF for a purchase price of $1,440 million.
The company advised that this agreement follows its strategic decision to pursue an exit of MLC. It is also in line with its strategy to simplify and focus on its core banking business, while creating a stronger future for MLC.
NAB's CEO, Ross McEwan, explained: "We have a clear plan and we are getting on with it. The sale of MLC will enable NAB to prioritise investment and focus on executing our refreshed strategy of delivering simpler, more streamlined products and processes for our customers and colleagues."
"NAB has taken a disciplined approach over the past two years to transform the business and prepare it for exit. Significant work has been done by MLC CEO Geoff Lloyd and his executive team to modernise and strengthen the MLC business and remediate customers," he added.
The chief executive believes the sale of the business is the best outcome for shareholders and MLC stakeholders.
He added: "Consolidation has the potential to deliver significant benefits for clients and members, including scale and reducing costs, complexity and risks. The combined business is expected to be a highly competitive, advice-led retail wealth manager."
What are the terms of the deal?
The purchase price of $1,440 million represents a multiple of 17.3x MLC's cash earnings of approximately $83 million.
It comprises $1,240 million in cash proceeds from IOOF and $200 million in the form of a 5-year structured subordinated note in IOOF. The latter will provide NAB with the opportunity to participate in the potential value created through the combination of MLC and IOOF over the medium term.
In addition, NAB is expected to receive approximately $220 million of surplus cash from MLC in the form of a pre-completion dividend.
What impact will this have on NAB's balance sheet?
On a pro forma 30 June 2020 basis, NAB core equity tier 1 (CET1) capital is expected to increase by approximately 30 basis points. This will result in a pro forma CET1 ratio of approximately 11.9%.
Management also expects the transaction to deliver a modest uplift to its return on equity.
Though, the transaction is estimated to result in a post-tax loss on sale of approximately $400 million. This includes post-tax separation and transaction costs for NAB of approximately $200 million.
Completion of the transaction is subject to certain conditions, including regulatory approvals from APRA and ACCC. Subject to the timing of these regulatory approvals, completion is expected to occur before the middle of calendar year 2021.
