The big four bank declared on Wednesday it had entered into the sale agreement for 55 per cent interest in CFS with global investment firm KKR.
The transaction implied a total valuation for CFS on a 100 per cent basis of $3.3 billion, which will result in CBA receiving cash proceeds of approximately $1.7 billion, making for a post-tax gain of $1.5 billion. The post-tax gain figure included separation and transaction costs for the bank of around $180 million.
CBA reported the sale price represents a multiple of 15.5 times CFS’ pro forma net profit after tax of around $200 million.
CBA and KKR intend to undertake a significant investment program in CFS, aiming to strengthen its position in the Australian market as a retail super and investments business.
The bank said the sale is “expected to enhance the tools provided and the ease of doing business with CFS” for advisers.
The program is also intended to deliver benefits for the company’s 1 million members, including a simplified product offering with competitive pricing and choice, improved service experience and accelerated investment in digital channels, modernised technology systems for super service experience and better access to member education, support and self-service tools.
However, the transaction is not expected to have any impact on ongoing remediation activities relating to CFS – the bank’s program is set to continue as planned.
CBA stated the transaction is in line with the group’s simplification strategy, focusing on its core banking businesses after the group looked to exit wealth management. It completed the sale of the CFS asset management business (now First Sentier) to Japanese bank Mitsubishi UFJ Trust and Banking Corporation (MUTB) last year.
It had also sold advice business Count Financial, while signalling the closures of aligned advice groups Financial Wisdom and CFP Pathways.
CFS is expected to operate meanwhile as a standalone business.
Completion of the sale is still subject to APRA and Foreign Investment Review Board regulatory approvals – but CBA expects the transaction to be finished in the first half of 2021.
CBA chief executive Matt Comyn commented: “We are confident that together with KKR, we can provide CFS with an increased capacity to invest in product innovation, new services and its digital capabilities.”
Partner and head of KKR Australia Scott Bookmyer said KKR looks forward to “accelerating CFS’ transformation”.
KKR anticipates to make its investment in CFS primarily from its Asian equity fund.
Post-sale, CBA expects an increase of around $1.4 billion to $1.9 billion of common equity tier 1 capital.
As at 31 March, KKR held US$207 billion of assets under management.
Maybe KKR could also buy a dealer group, then bulk transfer funds from the non-aligned platform onto CFS – ta, thanks, my consulting invoice is in the mail.
Oh hold on…
Well done Mr Hayne, Ms Orr and Mr Costello.
A great development for retiring Australians.
KKR will never let you down.
CFS’s appalling decision to rip advisers blind of grandfathered commissions 7 months in advance of legislative requirements may well have been one of the criteria KKR demanded to have been implemented before discussions were to proceed or negotiations finalised.
Rather than CFS stating they needed time to implement I suspect there were other matters at play now this has come out.
How hard is it for CFS to simply switch off the grandfathered commission from a members account in Dec this year ?
They can switch an ASF on or off at will and openly encourage their members to do so by continually contacting them and subliminally notifying them they control the process and do not have to discuss it with their adviser.
I used to have a fair bit of respect for CFS but this has fallen off the edge of a cliff.
They have destroyed so many good adviser relationships through underhanded and deceitful treatment whilst still telling them they value them.
It’s like telling your partner you still love them whilst having an affair behind their back.
Hang on, I thought the end of grandfathering was tied into a full platform reprice? I’ve been transitioning all my trail clients to adviser service fees since 2015ish… Are you suggesting that my clients should continue to pay the higher fees for another 7 months to line your pocket?
Spot on Joe, the laggards still waiting at the station for the gravy train to pull in still don’t get it. The irony is in the name “Customer”…or should that be “Member”?
Clinging onto what is so rightly theirs….
Colonial First State was great as a stand alone in the first place – CBA made changes that did not make sense as the RC showed.
What could possibly go wrong with KKR and Private Equity
Yes – private equity always act in everyone’s best interests and hence this will be a “win win” for the advisers and clients alike.