Challenger Limited · ASX:CGF
Challenger — Challenger International — Merger or Acquisition (May 2003)
36 slides from Challenger's merger presentation, May 12, 2003
Slide 1: CPH Investment Corp / Challenger International Limited
CPH Investment Corp / Challenger International Limited 12 May 2003
Slide 2: Presenters
CPH Investment Corp / Challenger International Limited ♦ Chris Cuffe — Acting CEO, Challenger ♦ Steve Gilsenan — CFO, Challenger ♦ Geoff Walker — Head of Capital & Risk Management, Challenger ♦ Tanya Atkins — Head of Shareholder & Media Relations, Challenger 1
Slide 3: Contents
Contents Section 1 The merger 3 Section 2 Overview of CPH Investment Corp 10 Section 3 Overview of Challenger 13 Section 4 Intended strategy for merged entity 18 Section 5 Pro forma financial position 23 Section 6 Key terms 28 Section 7 Timetable 34 2
Slide 4: The merger
The merger SECTION 1
Slide 5: The merger
The merger ♦ Merger of CPH Investment Corp and Challenger International Limited ♦ CPH Investment Corp to be renamed “Challenger Financial Services Group” CPH Management Challenger Financial Limited Services Group Responsible entity Assets of the trust, including Challenger ♦ Merger highlights — Grea
Slide 6: New board of CPH Management
Challenger Financial Services Group New board of CPH Management ♦ James Packer—Chairman ♦ Chris Cuffe—Managing Director and CEO ♦ Ashok Jacob ♦ James Service—current Challenger director ♦ Brenda Shanahan—current Challenger director ♦ Russell Hooper ♦ Peter Polson ♦ Michael Tilley 5
Slide 7: New management team
Challenger Financial Services Group New management team ♦ Chris Cuffe—Chief Executive Officer ♦ Tim Foster—Chief Financial Officer ♦ Geoff Walker—Head of Capital & Risk Management ♦ Brian Benari—GM Investments ♦ TBA—GM Distribution & Product Strategy ♦ Derek Goh—GM Information Technology ♦ Hayden Ki
Slide 8: Independent experts' findings
Independent experts’ findings Challenger CPHIC ♦ Grant Samuel ♦ KPMG — Merger in the best interest of — Share and Note Proposals Challenger shareholders, fair and reasonable, having noteholders and regard to the interest of non- optionholders, in the associated unitholders absence of a superior prop
Slide 9: Benefits of the merger
Benefits of the merger Challenger CPHIC ♦ Access to greater capital resources ♦ Challenger provides platform for — CPHIC to inject $235m into growth CLL2 statutory fund — leading provider of long term — improved quality of regulatory annuities capital ♦ Access to growth areas of funds ♦ Participatio
Slide 10: Ownership structure post-merger
Ownership structure post-merger ♦ Following implementation of the Share Scheme only CPH and associates Other unitholders 100% 24%* 76% CPH Management CPHIC Limited Responsible entity Assets of the trust, including Challenger * If all Schemes take effect and all Challenger Notes are transferred to CP
Slide 11: Overview of CPH Investment Corp
Overview of CPH Investment Corp SECTION 2
Slide 12: Overview of CPHIC
Overview of CPHIC ♦ A listed managed investment scheme ♦ Portfolio of listed and unlisted assets ♦ Intend to retain private equity investments — but in the short term do not intend to significantly expand other than through increasing position in existing investments Asset (as at 31 Dec 2002) Book v
Slide 13: CPH Investment Corp
CPH Investment Corp A listed managed investment scheme ♦ Responsible entity—CPH Management — management and trustee responsibilities ♦ Disclosure requirements — all ASX and ASIC requirements (annual report, half yearly report, continuous disclosure) ♦ Distributions — CPHIC taxed as a company for FY2
Slide 14: Overview of Challenger
Overview of Challenger SECTION 3
Slide 15: Overview of Challenger's current position
Overview of Challenger’s current position Challenger Challenger Life Challenger Group Investment Services Retirement income / Funds management annuity products Platform Property investment administration portfolio Financial planning Fixed interest portfolio Other financial services 14
Slide 16: Leader in long term annuities
Leader in long term annuities Challenger is the leading provider of long-term annuities in Australia Challenger Citicorp AXA Australia CBA/Colonial AMP Westpac MLC ANZ Tower 0 100 200 300 400 500 600 700 2002 Inflows (A$m) Source: DEXXR 15
Slide 17: Howard Mortgage Trust
Howard Mortgage Trust ♦ $2.2 billion in FUM as at 31 December 2002 ♦ 20% market share of the $7.5 billion mortgage trust sector ♦ “Fund Manager of the Year - Mortgage Funds” MONEY MANAGEMENT 2002, 2001, 1999 ♦ Rated 5 Stars by ASSIRT 16
Slide 18: Property portfolio has quality and scale
Property portfolio has quality and scale ♦ $2.7 billion portfolio (52 properties) ♦ Investment grade property ♦ Average property value $53 million ♦ Long leases (weighted average lease term ~ 11 years) ♦ Geographical and sector diversity ♦ Cashflows from rental streams support annuity liabilities Pr
Slide 19: Intended strategy for merged entity
Intended strategy for merged entity SECTION 4
Slide 20: Strategy for merged entity
Strategy for merged entity ♦ Commenced consolidation of existing position — review all products — exit non-core businesses — efficiency improvements in operating expenses ♦ Grow core businesses and achieve greater balance — annuities — funds management, administration and distribution ♦ Actively man
Slide 21: Annuities
Annuities ♦ CPHIC remains committed to the current annuity business model ♦ Long term annuities backed by property subject to — supply of property — rent yields > interest rates — will investigate alternatives to adapt to changing market conditions ♦ Short term annuities backed by fixed interest 20
Slide 22: Capital management plan
Capital management plan ♦ Achieve transparency by “look-through” income / capital units concept to current market value of the underlying properties ♦ Injection of $235 million cash into CLL2 to improve the quality of capital and to support new business ♦ Synergy / Garrisons Financial Planning trans
Slide 23: Funds management, administration and distribution—intend to accelerate growth
Funds management, administration and distribution—intend to accelerate growth Asset Distribution Direct property management ♦ Garrisons Financial (ex life company) ♦ Fixed interest & cash Planning ♦ Syndicates ♦ Mortgage securities ♦ Other acquisitions ♦ Economies of scale may ♦ Australian equity ♦
Slide 24: Pro-forma financial information
Pro-forma financial information SECTION 5
Slide 25: Pro-forma merged entity: change in accounting policies
Pro-forma merged entity Change in accounting policies ♦ Increase transparency through — looking through income and capital units concept to market value of underlying properties — debt fully stated on a current market basis ♦ Historical treatment and new accounting policies both valid ♦ New policies
Slide 26: Summary pro-forma Statement of Financial Position
Pro-forma merged entity Summary pro-forma Statement of Financial Position As at Net Pro-forma CPHIC 1 Challenger adjustments merged entity 31 Dec 2002 ($m) Total assets 500 5,031 5,390 Total liabilities 7 4,224 4,180 Net assets 493 807 (90) 1,210 Notes: 1 Net adjustments: Fair value (305) Acquisitio
Slide 27: Fair value adjustments
Pro-forma merged entity Fair value adjustments Source Net asset impact $m Change in valuation basis — Change income & capital units to underlying latest market value of properties (330) — Mark to market of fixed debt (106) — High level review policyholder liability values 96 Sub-total (340) Reassess
Slide 28: Acquisition accounting
Pro-forma merger entity Acquisition accounting Net asset impact Net asset impact $m Assume fair value for consideration of 47 cents per unit & all Schemes effective Total acquisition consideration $717m Elimination of convertible notes 75 Goodwill resulting from the transaction 201 Acquisition
Slide 29: Key terms
Key terms SECTION 6
Slide 30: Consideration offered
Consideration offered ♦ Challenger Shareholders—4.5 CPHIC units for every Challenger share ♦ Challenger Convertible Noteholders choice of: — 5.5 CPHIC units for each Challenger convertible note — roll-over on current terms (except exchange of 4.5 CPHIC units for every Challenger share issued if conv
Slide 31: Transaction structure
Transaction structure ♦ Scheme of arrangement for each class of security ♦ Share Scheme not dependent on Note or Option Scheme but Option and Note Schemes dependent on Share Scheme ♦ CGT rollover relief for Challenger shareholders likely following recent Government announcement ♦ No separate classes
Slide 32: Fee arrangements
Fee arrangements ♦ CPH Management is entitled to Management / Performance Fees ♦ In respect of the Challenger investment only, under the schemes CPH Management will — receive no Management Fee on that investment until the CPHIC unit price (10 day VWAP ) exceeds $0.60 and then – the cost of the Chall
Slide 33: Conditions
Conditions ♦ The merger is conditional on — CPHIC Unitholders approving the acquisition of Challenger Shares and Notes from CPH and its associates, pursuant to ASX Listing Rules 10.1 and 11.1.2 and the Corporations Act — approval of the Challenger Share Scheme by Challenger Shareholders and the Cour
Slide 34: Merger highlights
Merger highlights ♦ Greater access to capital for Challenger ♦ Focus on core annuity and funds management businesses ♦ Strategy will build on existing core business, building funds management operations to accelerate growth ♦ An equitable structure 33
Slide 35: Timetable
Timetable SECTION 6
Slide 36: Timetable
Timetable Friday 9 May ♦ First court hearing From 12 May ♦ Printing and dispatch of documents Monday 16 June ♦ Challenger Securityholder meetings Tuesday 17 June ♦ CPHIC Unitholder meetings Friday 27 June ♦ Second court hearing Tuesday 1 July ♦ Scheme effective date ♦ Last day of trading in Challeng
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