National Australia Bank (NAB) has agreed to divest 100% of its MLC Wealth business to IOOF Holdings for approximately $1.4bn.

The MLC wealth management unit includes financial advice, platforms, superannuation & investments and asset management businesses.

Other advice entities assets and related employees of the advice business will also be transferred to IOOF.

NAB will maintain legal ownership of MLC’s advice entities in order to complete advice-related remediation programmes. The company will provide targeted wealth management products and services via JBWere and nabtrade.

NAB and IOOF will also form a strategic alliance on various products and services. The companies will sign a referral agreement, under which NAB customers can access financial advice.

NAB strategic decision

This deal comes after the strategic decision by NAB in 2018 to sell MLC. Also, the agreement is part of the company’s strategy to focus on its core banking business.

The transaction will involve $1.2bn in cash proceeds from IOOF. In addition, NAB will receive $200m as a five-year structured subordinated note in IOOF.

NAB can use the structured subordinated note to be part of the potential value created by combining MLC and IOOF over the medium term.

Further, NAB is eligible for around $220m in surplus cash from MLC in the form of a pre-completion dividend.

NAB Group expects its Core Equity Tier 1 (CET1) capital to rise by approximately 30bps, on a pro forma 30 June 2020 basis.

The transaction will not require additional separation costs and strategic investment in MLC business by NAB. It is estimated to involve a post-tax loss on sale of about $400m.

NAB Group CEO Ross McEwan said: “We have explored a range of transaction options and are confident this sale provides the best outcome for NAB shareholders and for MLC stakeholders.

“We recognise the specialised nature of wealth management and the opportunity for the MLC business as part of IOOF.”

With the acquisition, IOOF expects to become a leading retail wealth manager with $510bn in funds under management and administration (FUMA).

Besides, IOOF will have 1,884 advisers and $173bn in funds under administration.

The transaction, which is subject to certain conditions, is set to close next year.