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CEO merger update - 14 Dec 2011

Last Updated : 15 Dec 2011

Today we are pleased to announce that we have selected Australian Super as a potential merger partner.

The Board of AGEST believes that AustralianSuper is the fund most likely to deliver ongoing benefits to you our members. AustralianSuper shares our philosophy and operating ethos that the fund must operate to serve the best interest of all members.

AustralianSuper was selected as the best fit for AGEST because of its consistent investment performance, commitment to low fees, wide variety of investment options, extensive range of ancillary services and a strong national presence.

We will now enter into negotiations with AustralianSuper to identify just how any merger might occur. In this second stage, the two funds will negotiate a high level implementation plan and conduct due diligence upon each other. We expect this assessment to be completed in the first half of 2012, when a decision will be made as to whether to proceed. And of course we will keep you fully informed as events progress.

You can find more information by following the links to the Media Release as well as the Q&As or calling our Contact Centre on 1300 724 378 (8am to 8pm EST Mon - Fri).

Regards

Cath Bowtell
Chief Executive Officer

Q&As Proposed merger – for members

 Q1 What is happening?

Today, 14^th December, AGEST Super announced that it has selected AustralianSuper as a potential merger partner. This followed a selected tender process, where AGEST evaluated a number of peer funds as potential merger partners.

AustralianSuper was selected as the best fit for AGEST because of its consistent investment performance, commitment to low fees, wide variety of investment options, extensive range of ancillary services and strong national presence.

AustralianSuper’s extensive merger experience was also a factor.

The next phase is for the two funds to negotiate a high level implementation plan, and conduct due diligence upon each other. This is expected to be completed in the first half of next year.

If this proceeds as expected and if the AGEST Board is satisfied that the proposed merger is in members’ best interests, then a merger would occur later in 2012.

By merging, AGEST members will benefit from being in a fund that is growing strongly, that is committed to low fees, and that offers a wide range of investment and other services to members across Australia.

Q2 Why is AGEST looking to merge?

AGEST and AustralianSuper are looking to merge because it is in members’ best interests.

The AGEST Board believes that members interests are best served by being in a fund with strong growth.

A growing fund can negotiate lower cost services for members, including access to more investment opportunities at a lower cost and better insurance arrangements for members.

And a growing fund has lower investment costs and greater flexibility as it can use cash-flow to rebalance the investment portfolio.

These savings go straight to improving members’ retirement savings.

While AGEST is currently growing, AGEST expects that in the medium term, without significant expenditure, (and an increase in fees) this growth will stall.

If AGEST and Australian Super merger, AGEST members will gain from growth in the fund membership, as a growing fund offers the advantages of economies of scale and has better buying power.

Q3 When are the funds merging? What’s the timing?

The two funds will negotiate a high level implementation plan. During that process, the ideal time for any merger will be agreed.

If AGEST decides to proceed with the merger, members and employers will receive plenty of notice about the timing and what it means for them.

The AGEST website will have up to date information and members and employers can always call the Contact Centre if they have any questions.

Q4 How big is each of the funds?

Currently AGEST has around 130,000 members and $4.3 billion in assets invested.

AustralianSuper has around 1.84 million members and total assets of around $42 billion.

Q5 Is AustralianSuper taking over AGEST?

No. AGEST will negotiate with Australian Super to ensure that the services that AGEST members value are carried over to the merged fund.

Q6 Is the merger definitely going ahead?

AGEST’s Board believes that a merger with a large fund will deliver long term benefits to its members.

The next step is for the two funds to negotiate a high level implementation plan, and to conduct due diligence upon each other. This is expected to be completed in the first half of next year.

At the same time the AGEST Board will complete its detailed cost/benefit analysis.

A final decision to proceed with the merger will be made if the AGEST Board is satisfied that a merger, in the form agreed, is in the best interests of members.

Q7 What happens in the legal and due diligence process?

AGEST and AustralianSuper will undertake due diligence on each other. During this process both funds give each other a thorough review prior to merging. Various aspects of each fund are reviewed by the other including the financial, legal, operational and governance arrangements of each fund.

A key aspect of due diligence is establishing that AGEST members generally will have benefits and rights that are equal to if not better than those they had prior to the merger.

It is only after due diligence has been completed and accepted by both fund’s Boards of Directors that the merger proceeds.

Q8 Do members get a say in whether the merger goes ahead?

The Trustee (AGEST) is responsible for making the decision and must do so in members’ best interest.

AGEST cannot merge into another successor fund unless members, on balance, have at least equivalent rights as they have within AGEST.

AGEST has communicated with members regarding the Board’s decision to seek a merger partner.

· All members were advised in writing of this decision in September.

· Member meetings were held throughout September – November.

· Member feedback was, and remains welcome.

To date, most members have supported the Board’s decision and processes. Of course, where a member disagrees with the Trustee’s decision then they can consider their ongoing membership of the merged fund.

Q9 Addendum Financial Review article 15 Dec 2011

Q9a I read in the Financial Review that millions of dollars could be wiped off AGEST accounts due to the merger.

The Financial Review (page 45, 15 Dec 2012) has reported that AGEST members will need to transfer $13 million to AustralianSuper upon merger.

No discussions have occurred regarding the different reserving policies of the two funds, and the article is entirely speculative.

The fact is that forthcoming regulations are likely to require funds like AGEST to build an Operations Risk Reserve. It is expected that under these changes, AGEST will be required to set aside around $10 million over the next 3 years. On a balance of $10,000 this would represents approximately $30 over three years or $10 pa.

Q9b What does this mean for the proposed merger?

There are a number of issues to be addressed in working through how the merger might occur, including the operational risk reserve. The Board in its cost/benefit analysis will consider each of these.

This analysis will compare the costs and benefits of merging to the costs and benefits of remaining as a separate entity.

Furthermore, the decision to proceed with the merger will be made only if the AGEST Board is satisfied that a merger, in the form agreed, is in the best interests of members.

If you have a query regarding the information above, please call our Contact Centre on 1300 724 378 or email to: info@agest.com.au

Q&As Proposed merger – for employers

Q1 Will there be a change in my usual fund contacts?

AGEST employers will continue to receive the same service they currently receive.

After the merger there may be some change in roles as we integrate all the staff from AGEST and AustralianSuper.

Q2 Will there be a change in fund administrator for the merged fund?

The intention is to harness economies of scale by using only one administrator.

The timing as to a transition is a matter to be agreed in the implementation plan. The funds will work with their administrators to identify the best time to conduct an efficient transfer. In the meantime administration processes will be kept separate.

Q3 Do employers have to do anything?

No. Right now it is business as usual at AGEST and there is nothing that employers need to do.

It is the same for AustralianSuper employers.

Q4 What action do I need to take before the merger and by when?

We will be keeping our employers up-to-date with progress on the merger over the coming months.

Closer to the proposed merger date you will receive details of any action required.

Q5 I currently have employees in both AGEST and AustralianSuper – what should I do?

Employer should continue to make contributions for AGEST and AustralianSuper as separate entities.

Q6 What additional information will employers receive about this merger, and when?

We’ll be keeping our employers up-to-date with progress on the merger over the coming months.

Closer to the proposed merger date you will receive details of any action required.

If you have a query regarding the information above, please call our Contact Centre on 1300 724 378 or email to: employers@agest.com.au