Computershare set to take serious steps to ensure a smooth acquisition.
Computershare announced last week that it plans to acquire Bank of New York Mellon’s investor services business for a whopping $550 million in an all-cash transaction.
After making previous transactions of a similar nature, such as Equiserve and Georgeson Shareholder Services, Computershare says it is well prepared to handle another large-scale acquisition.
‘We have been able to refine our processes to avoid disruption to our services,’ confirms a Computershare spokesperson. ‘Pending regulatory clearance and post close, Computershare and BNY Mellon Shareowner Services would form a joint team consisting of senior, experienced worldwide staff who will be solely dedicated to the integration ensuring that current business operations and client services continue providing high-quality, customer-focused service.’
According to the Melbourne-headquartered transfer agency and share registry giant, this transaction marks one of its largest and most significant deals. It will boost earnings per share for Computershare from the first year following completion, with annual cost synergies of over US$70 million targeted by the third year, Computershare says.
If successful, the deal will make Computershare a dominant US player in the investor-services business, and will most likely draw regulatory scrutiny.
‘The big issue here will be how the industry is defined,’ says Jack Sunday, an industry consultant and CEO of Group Five, a consulting and market research firm specializing in corporate shareholder and stock plan services. ‘Computershare will argue that the market is bigger than transfer agency services and includes all shareholder communications, such as the Broadridge business, proxy solicitation and other ancillary services.’
By the same token, the Wall Street Journal reports that there was once a 'bidding market' for transfer-agent services in the US, with aggressive competitors including American Stock Transfer, Wells Fargo and Broadridge. But now, BNY Mellon and Computershare are number one and number two, respectively, in transfer agent services and will trigger competitive review.
‘The transaction will also increase Computershare’s ability to control pricing in the US which has been very competitive in the last few years,’ adds Sunday.
Russell Gill, an Australian-based JPMorgan equity research analyst says ‘this transaction (if successful) would be a game changer for Computershare and the US transfer agent market structure.’ He adds that the move will ‘essentially double Computershare’s scale while removing a competitor from the marketplace, reminiscent of the Equiserve transaction back in late 2004.’
According to the analyst, BNY Mellon, Computershare, Wells Fargo and American Stock Transfer are all currently seen as industry heavyweights and the US transfer agent market remains a competitive place.
Gill also notes in his report, ‘CPU Acquisition of BNY Mellon Shareowner Services’, that the increased value of the Australian dollar propelled this historic transaction. ‘It is important to highlight that given Computershare’s diverse earnings base, currency assumptions play a meaningful role in earnings estimates for the company,’ he says. ‘Any movement in the US dollar over the next three years will impact the base case earnings position for Computershare standalone and hence the earnings accretion from the BNY Mellon acquisition.’
Sunday raises a similar point; he attributes his claims to the Australian press, which highlights that the dollar valuation was a factor in motivating this transaction.
‘Also, I think this bid was inspired by Broadridge's entry into the transfer agent business and the pending changes in regulations surrounding shareholder communications to Street holders,’ Sunday notes. ‘I believe Computershare would have bought this business at any price to gain market share in transfer agent services.’
BNY Mellon’s Shareowner Services, which provides transfer agency and equity services to publicly listed companies, claims that the $550 million deal will result in a ‘modest’ net loss but will also support its capital ratios by providing $200 million in additional capital.
‘This transaction will combine the shareowner services business and its employees with an enterprise strongly committed to growth in the global equity administration market space,’ says Karen Peetz, BNY Mellon vice chairman.
The deal is expected to take a year to clear the regulatory hurdles.
