Will the Bank of Queensland try to muscle into the agreed merger between Bendigo Bank and Adelaide Bank which will create a super regional financial institution?
The $4 billion, 23% premium merger comes only a few months after the Bank of Queensland failed to win over Bendigo in a $2.5 billion offer that was resoundingly rejected.
That deal was rejected by Bendigo because it was felt it was really a takeover deal by the more entrepreneurial BoQ which would have left the Brisbane-based dominant and question marks over Bendigo's popular community banks.
It now has been revealed that BEN was talking to ADB while rejecting the BoQ.
The latest deal, revealed yesterday, along with the 2007 earnings reports from both banks, shows that Bendigo (BEN) and its shareholders will dominate the smaller Adelaide Bank (ADB). In the BoQ offer, its shareholders would have dominated the larger and more profitable BEN.
Bendigo shareholders, many of whom live in and around the central Victorian city, will end up owning 55% of the merged group with the remaining 45% held by ADB shareholders.
It was that intense regionalism of BEN's shareholders that stiffened the bank's board and saw off the Bank of Queensland and CEO, David Liddy.
The terms of the deal will see shareholders in Adelaide get 1.075 Bendigo shares for every share that they own in their bank. The merger will take place under a scheme of arrangement and require the support of Adelaide's shareholders.
As there are no shareholders in either bank above 10% that should be fairly easy. GMO Australia is the only substantial shareholder in ADB. It is a Boston-based fund manager with around $US150 billion under management.
The new bank would be in the top 70 companies listed on the ASX 200.
The merger will mean Bank of Queensland is left on its own: that is why it might try to storm the deal. It obviously wants to get bigger and why it didn't approach ADB is a mystery.
ADB is a bit more entrepreneurial than Bendigo with a wholesale mortgage business and margin lending operations, all of which are a bit more dashing than the traditional branch banking and community businesses of BEN. But BEN does have a shareholding in the listed fund manager, IOOF, which in turn controls the growing Perennial funds management group.
Bendigo dwarfs Adelaide in the size of its branch network and number of customers. Between them, they will have just over 1.3 million customers, 382 branches and 82,000 shareholders.
The two profits announced yesterday reveal that the new bank will be looking at earnings of upwards of a quarter of a billion dollars.
Both reported record annual profits yesterday: ADB's cash earnings (the best way to measure and compare bank profits) rose 11% to $104.3 million and BEN lifted its cash earnings 15.6% to $118.5 million.
There will be pre-tax savings of $60 million to $65 million from eliminating back office overlap, and the double digit growth each are expecting could push earnings to around the $250 million mark next year, which would give it a lot more clout.
Bendigo's joint venture businesses, Elders Rural Bank, Tasmanian Banking Services, Community Sector Banking and Homesafe will be retained and the community bank model will be expanded.
And the two said the merged group would have greater capacity to invest further in the South Australian branch network.
As part of the merger, Bendigo's chairman Robert Johanson (he's a former JBWere broker and investment banker) will head the new bank while the Victorian group's managing director Rob Hunt will be the new chief executive, with Adelaide's recently-appointed managing director Jamie McPhee in effect his deputy.
Mr Hunt will retire in two years time and is expected to be replaced by Mr McPhee.
The plan has been unanimously approved by directors of both banks.
The new entity will be called Bendigo and Adelaide Bank Ltd and will have loans under management of more than $43 billion and funds under management and advice of about $7 billion.
Will it be given the ASX code of BAB?
ADB shares jumped sharply to more than $2.11 to $16.52, after hitting the silly price of $18; BEN shares fell 10c to $16.40, after being up 49c at one stage and Bank of Queensland jumped $1.22 to $17.80 after touching $17.94. Investors think BoQ is on somebody's radar.
