All-cash Rival Bid For St George Unlikely

All-cash Rival Bid For St George Unlikely

Sydney Morning Herald
20 May 2008
Danny John

THE prospect of an international bank or an unlisted local rival making an all-cash bid to counter Westpac's $66 billion merger with St George Bank has receded sharply after such a proposition was rejected by St George's chairman yesterday.

Outlining his board's decision to support the Westpac offer, John Curtis told St George's 160,000 shareholders that the scrip-based deal and the promise to retain much of the smaller bank as a stand-alone operation was much more attractive than just taking a bidder's money.

Mr Curtis, who succeeded John Thame as chairman only seven weeks ago, said in a letter to investors that there was no particular way to measure the relative importance of the main components of the Westpac deal, but together they outweighed the merits of an all-cash deal.

In particular, the board considered the swap of 1.31 Westpac shares for every St George share, the guarantee to keep the St George brand and its 400-strong branch network, and the additional financial worth it would bring to the merged bank were all superior factors, he said.

St George supports the transaction, which values the bank at about $18 billion. Its shareholders will own 28 per cent of the merged bank if they swap their shares for new stock instead of selling into the market beforehand.

The NSW-based bank's backing was considered essential by Westpac, knowing that 60 per cent of St George investors are small retail shareholders.

Mr Curtis's comments indicate it will be difficult for another large institution to derail the transaction with Westpac unless it was to offer better share swap terms and at least match its other promises to St George.

A rival cash offer has been thought unlikely by analysts because an overseas bank or local competitor like BankWest, owned by the British banking group HBOS, would need to find almost $20 billion from credit-starved debt markets to fund an approach.

But a domestic counter bid is almost certain to come from the likes of National Australia Bank, which has voiced its interest in the contest but has to wait until a two-week exclusivity period expires before approaching St George.

But NAB is likely to baulk at the St George directors' firm stance on retaining most of its business separately. Westpac has indicated it will raise its offer if such a bid eventuates, leading to a costly and highly contested takeover battle.

St George's shares rose 24c yesterday to $33.52.

That put them $1.77 - or almost 5 per cent - above the value of the Westpac offer, based on its share price of $24.23, down 63c on the day - although 65c of that gap reflected Westpac going ex-dividend.

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