Good and bad news for IOOF
The good news for IOOF (ASX: IFL) following the battering it took from shareholders last month is that the Australian Competition and Consumer Commission (ACCC) has approved its MLC takeover. The bad news is that the remaining class action against it has been funded.
The ACCC said on Monday it would not oppose IOOF’s $1.4 billion acquisition of MLC, ruling the merged entity would have only a 10% share of the advice market. IOOF is estimated to manage $510 billion after the merger is completed in the first half of next calendar year.
The combined wealth management operations would still face competition from AMP, the ACCC said, and the market remained fragmented. AMP had $121.4 billion under management in its wealth management arm as at September 30. AMP Capital, the funds management engine, had $189.2 billion.
The announcement followed a lively annual meeting of IOOF shareholders on November 25, at which directors were asked to prove the merits of the firm’s MLC takeover. They received a hefty protest vote over executive pay at the meeting.
Shareholders representing 19.6% of the capital voted against IOOF’s remuneration report, highlighting ongoing concerns from investors about the takeover. In August, news of the MLC deal triggered an investor sell-off that took 20% off the value of the company. The shares traded at $3.84 after the meeting.
But IOOF continues to face a class-action challenge following the ACCC verdict. This is being undertaken by Shine Lawyers, which has progressed through funding stage. A previously proposed action, through lawyers Quinn Emanuel, was dropped early this year.
Patrick Liddy, the principal of MSI Group consultants, and Shine Lawyers have been speaking with “numerous wholesale investors,” including some big super funds and managers, interested in joining the current class action against IOOF for alleged corporate misconduct over 2014 and 2015.
Liddy said that the response had been very positive. “Even fiduciary investors and managers who have significant stakes in IOOF will be better-off taking part in the action, than not, on behalf of their own shareholders, clients and members,” he said.
The action is open to shareholders between March 1, 2014 and July 7, 2015. It is backed by litigation funder LLS Fund Services, which is a fund run by Litigation Lending Services Ltd.
The claim previously brought by APRA, through Quinn Emanuel, proved unsuccessful, with sides settling in May without costs being awarded. IOOF told the ASX that it did not need to make any payments to the opposing side, which included regulator APRA.
Craig Allsopp, Shine Lawyers class actions practice leader, who was formerly a senior lawyer in ASIC’s enforcement area, said IOOF would now be answerable to the court. “This class action is seeking redress for shareholders who have suffered substantial losses from the alleged wrongdoing by IOOF,” he said.
The wrongdoing includes alleged insider trading, front-running, staff cheating on exams, breaches of trustee duties, and risk and governance failures between 1995 and 2015. Apart from being aired by Fairfax Media (now Nine Entertainment) previously, the issues were also raised at the Royal Commission into Banking and Superannuation in 2018.
Shine Lawyers alleges that by failing to disclose the corporate misconduct, IOOF breached its continuous disclosure obligations and/or engaged in misleading and deceptive conduct.
Granting its go-ahead for the MLC deal, the ACCC said that IOOF would be competing with and constrained by several other large firms, as well as smaller firms, for the supply of retail platforms. and it would attract significant competition from large industry funds against its corporate platforms for super and retirement income flows.
ACCC commissioner Stephen Ridgeway said that transactions that combined two major firms in a sector attracted close scrutiny from the competition watchdog.
“However, feedback from consumers, financial advisers and other industry participants suggested that this deal would not be likely to substantially lessen competition,” he said.
“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 more of the relevant markets and strong constraints from remaining competitors.”
IOOF has previously signalled it expects the deal to wrap-up before June.