It’s now up to the likes of the National Australia Bank, the Commonwealth or ANZ to put their money where their ambition is and have a go at snatching St George Bank away from Westpac.
For various reasons the trio are not in an ideal state to counter the Westpac move on St George, but it will be the last chance to make a dramatic snatch for local market share before the Four Pillars competition policy is set in concrete.
St George Bank’s board will recommend Westpac’ $19 billion takeover to its shareholders after the two lenders signed an implementation agreement yesterday.
With some of the uncertainty gone Westpac shares rose strongly, adding 67 cents $23.18 before fading in late trading to end up just 17 cents at $22.68. St George shares rose 39 cents to $32.71 at one stage before easing also to end 129 cents higher at $32.51. The suggested price a fortnight ago when the merger was revealed was $33.10.
It would seem the market is discounting another offer for SGB.
Under the agreement, St George shareholders will receive 1.31 Westpac shares for each share they hold.
As well, Westpac has, as outlined when the bid was revealed a fortnight ago, promised to retain the St George, BankSA and Asgard brands with no net reduction in ATMs or the retail network.
The exclusivity period for the deal, which provides for St George to work exclusively with Westpac, has been extended.
But the agreement does not prevent St George from considering any superior proposals that may emerge.
There is no break fee provided in the implementation agreement and no sign of Westpac wanting to reactivate its push for a $100 million fee. Obviously it’s embarrassed at the details of the fee demand getting out into the public arena..
The proposed merger will create an almost equal sized competitor to the Commonwealth and the NAB.
For that reason, I suppose you can’t rule out the CBA and the ANZ somehow combining. Even though that would break the Four Pillars policy, Westpac’s merging with St George could leave the way open for the smaller Melbourne-ANZ to merge with the larger Sydney- based CBA. There would be fewer competition problems.
Westpac says it is looking for cost savings of around $300 million, which will mean cuts in St george’s back office, support systems, advertising and marketing businesses.
A combined Westpac and St George would have an AA credit rating, putting the merged entity in a strong position in the current financial environment, the two lenders said in yesterday’s statement.
Westpac boss Gail Kelly, who formerly headed St George, had the now usual spin on the deal, saying in a statement that the merger would create "a springboard for growth with strong brands, leading products and an extensive distribution network".
"The customer-focused cultures of both St George and Westpac are fundamental to this merger," she said.
"Customer service will be enhanced as the increased scale and integration of operations will drive further investment in our back-office processes," Mrs Kelly said.
"Each bank’s customers will also benefit from greater diversity and choice of products from both organisations."
Westpac Chairman Ted Evans claimed that the merger of Westpac and St.George will ultimately deliver improved customer service with strong brand support, enhanced returns for shareholders and a strong commitment to community initiatives.
"The combination of both organisations’ strengths and leading customer advocacy will create a compelling proposition for all stakeholders.”
And in the same statement, St.George Chairman John Curtis said: “The proposed merger will allow the distinctive brands, culture and customer service focus of St.George to be retained and strengthened. This should greatly enhance customer experience and shareholder value.”
Mr Curtis said “The St.George board intends to recommend to its shareholders Westpac’s offer of 1.31 Westpac shares for each St.George share.
"The recommendation is subject to an Independent Expert’s report concluding that it is in the best interests of our shareholders, no superior proposal emerging, and the St.George board continuing to hold the view that the proposed merger is in the best interests of St.George shareholders, compared to the position when the proposed merger was announced on 13 May 2008.”
St.George shareholders will receive a final dividend for the 2008 financial year, which is anticipated to be in accordance with St.George’s usual dividend payout ratio.
The statement argued that the proposed combination of Westpac and St.George is a compelling proposition for stakeholders:
"All Westpac and St.George brands, including BankSA, Asgard and branch/ATM networks will be retained.
"The intention is that there will be no net reduction in branch or ATM numbers. A corporate presence will also be retained in Kogarah.
"The focus will be on investing more in front-line services. • The combined 10 million customers would benefit from an enhanced offering in terms of product range, expanded distribution and financial strength, and preserving their relationships with existing employees, products, customer touch points and branding.
"The merger will create Australia’s leading financial institution. Together, Westpac and St.George will have an AA credit-rating, putting the merged entity in a strong position in the current environment."
The Merger Implementation Agreement binds both companies to work towards completing the deal in the last months of this year.
The MIA is subject to a limited number of standard con
