(Bloomberg) -- Westpac Banking Corp. agreed to buy St. George Bank Ltd. for A$18.6 billion ($17.6 billion) to create Australia's second-biggest bank and largest provider of home loans.
St. George will recommend shareholders accept the offer of 1.31 Westpac shares for each of its shares, the Sydney-based banks said in a joint statement today. The deal values St. George at A$33.10 a share, 24 percent above its closing price on May. 9.
Westpac Chief Executive Officer Gail Kelly, recruited from St. George in August, is attempting Australia's biggest banking takeover to leapfrog Commonwealth Bank of Australia in the $165 billion home loan market. Since her appointment, Westpac stock is the best performer among the nation's banks, while St. George is the worst.
``Gail moved surprisingly fast, even for her,'' said Rob Patterson, managing director of Argo Investments Ltd. in Adelaide, which manages $3.8 billion in stocks, including Westpac and St. George. ``It's a sensible deal, and St. George's board regards it as fair, so now it's up to the shareholders.''
St. George shares jumped 28 percent to A$33.99 as at 11 a.m. in Sydney. Westpac fell 0.6 percent to A$25.85
The 50-stock S&P/ASX 200 Finance Index rose to a three-month high on optimism the offer may spur more acquisitions. Bank of Queensland Ltd. rose 5.2 percent while Bendigo and Adelaide Ltd. climbed 5.8 percent.
Profit Growth
Kelly, 52, started at Westpac Feb. 1 after almost six years running St. George. Under the former South African schoolteacher, St. George stock outperformed its four larger rivals -- Westpac, National Australia Bank Ltd., Commonwealth Bank of Australia and Australia and New Zealand Banking Group Ltd. -- as Kelly doubled profit.
All Westpac and St. George brands will be retained as part of the deal, creating a company with 10 million customers and about A$500 billion of assets. The combined company would control 25 percent of Australia's home loans market.
At current prices the deal would be the biggest between two Australian-based companies, beating Wesfarmers Ltd. in its A$18.2 billion acquisition of supermarkets chain Coles Group Ltd. in November. BHP Billiton Ltd. has made a hostile $177 billion offer for London-based Rio Tinto Group in what would be the largest transaction by an Australian company.
The deal is subject to approval by shareholders, the Australian government and competition and banking regulators. St. George also said its recommendation is subject to review by an independent expert.
Bond Risk
The yield investors demand to own St George's five-year subordinated bonds plunged 75 basis points yesterday to 175 basis points more than the bank bill swap rate, ABN Amro Holding NV prices show. The yield margin is 25 basis points more than Westpac's five-year subordinated bonds which are trading at 150 basis points more than the swap rate.
``The 25 basis points difference in spread represents the considerable event risk surrounding the transaction including shareholder approval, regulatory approval and government sign off,'' Mark Bayley, director of credit at ABN Amro Sydney, wrote today in a research note. ``We think that if the deal goes through, the spread differential should narrow.''
A basis point is 0.01 percentage point.
Caliburn Partnership is advising Westpac, while UBS AG is St. George's adviser.
St. George will recommend shareholders accept the offer of 1.31 Westpac shares for each of its shares, the Sydney-based banks said in a joint statement today. The deal values St. George at A$33.10 a share, 24 percent above its closing price on May. 9.
Westpac Chief Executive Officer Gail Kelly, recruited from St. George in August, is attempting Australia's biggest banking takeover to leapfrog Commonwealth Bank of Australia in the $165 billion home loan market. Since her appointment, Westpac stock is the best performer among the nation's banks, while St. George is the worst.
``Gail moved surprisingly fast, even for her,'' said Rob Patterson, managing director of Argo Investments Ltd. in Adelaide, which manages $3.8 billion in stocks, including Westpac and St. George. ``It's a sensible deal, and St. George's board regards it as fair, so now it's up to the shareholders.''
St. George shares jumped 28 percent to A$33.99 as at 11 a.m. in Sydney. Westpac fell 0.6 percent to A$25.85
The 50-stock S&P/ASX 200 Finance Index rose to a three-month high on optimism the offer may spur more acquisitions. Bank of Queensland Ltd. rose 5.2 percent while Bendigo and Adelaide Ltd. climbed 5.8 percent.
Profit Growth
Kelly, 52, started at Westpac Feb. 1 after almost six years running St. George. Under the former South African schoolteacher, St. George stock outperformed its four larger rivals -- Westpac, National Australia Bank Ltd., Commonwealth Bank of Australia and Australia and New Zealand Banking Group Ltd. -- as Kelly doubled profit.
All Westpac and St. George brands will be retained as part of the deal, creating a company with 10 million customers and about A$500 billion of assets. The combined company would control 25 percent of Australia's home loans market.
At current prices the deal would be the biggest between two Australian-based companies, beating Wesfarmers Ltd. in its A$18.2 billion acquisition of supermarkets chain Coles Group Ltd. in November. BHP Billiton Ltd. has made a hostile $177 billion offer for London-based Rio Tinto Group in what would be the largest transaction by an Australian company.
The deal is subject to approval by shareholders, the Australian government and competition and banking regulators. St. George also said its recommendation is subject to review by an independent expert.
Bond Risk
The yield investors demand to own St George's five-year subordinated bonds plunged 75 basis points yesterday to 175 basis points more than the bank bill swap rate, ABN Amro Holding NV prices show. The yield margin is 25 basis points more than Westpac's five-year subordinated bonds which are trading at 150 basis points more than the swap rate.
``The 25 basis points difference in spread represents the considerable event risk surrounding the transaction including shareholder approval, regulatory approval and government sign off,'' Mark Bayley, director of credit at ABN Amro Sydney, wrote today in a research note. ``We think that if the deal goes through, the spread differential should narrow.''
A basis point is 0.01 percentage point.
Caliburn Partnership is advising Westpac, while UBS AG is St. George's adviser.
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