IOOF Holdings Limited (ASX: IFL) shares are up after being given the ACCC’s approval to acquire MLC Wealth Management from National Australia Bank Ltd (ASX: NAB).
What did the ACCC say?
IOOF announced it wanted to acquire MLC about four months ago, but it has only just been given the go-ahead from the Australian Competition and Consumer Commission (ACCC).
The ACCC’s review indicated that, after the acquisition, IOOF would be competing with and constrained by several other large financial services competitors along with several smaller firms for the supply of retail platforms. Its market share of financial advice would only be around 10%.
For the supply of corporate platforms for superannuation and other retirement income, the ACCC’s review indicated that large industry superfunds would provide heavy competition.
ACCC Commissioner Stephen Ridgeway said: “Transactions that combine two major firms in a sector will attract close scrutiny from the ACCC.
“However, feedback from customers, financial advisers and other industry participants suggested that this deal would not be likely to substantially lessen competition.
“Despite the profile and size of this transaction, it does not raise concerns under section 50 of the Competition and Consumer Act largely due to the fragmented nature of most of the relevant markets and strong constraints from remaining competitors.”
What to make of this deal
IOOF will become a true heavyweight in the sector once this deal is completed. This could help cement IOOF’s position in the industry if it can build a better reputation for MLC (which suffered from the Royal Commission).
Renato Mota, the CEO of IOOF, said: “MLC is a highly complementary wealth management business which is a natural fit with IOOF. It presents a unique opportunity to create Australia’s leading wealth manager along with significant benefits through simplification and transformation for clients, members and shareholders.
“Combining IOOF and MLC creates a common purpose and culture of community spirit and supporting people to achieve their financial goals. This combination brings wide-ranging capabilities, technical expertise to enable improved choice, accessibility and client outcomes.”
Whilst I’m not a fan of the financial advice service industry, IOOF could be cheap enough for today’s share price to deliver market-beating returns in the medium term, particularly if IOOF has a high dividend payout ratio.
But for me, there are safer ASX dividend shares like Brickworks Limited (ASX: BKW) which have a clearer path to dividend growth over time.
