Pressure On Nab To Act As Westpac, St George Reveal Marriage Terms

The Age
26 May 2008
Danny John, Sydney

WESTPAC and St George are set to unveil the detailed terms governing their planned merger after a scramble by accounting and legal specialists to complete investigations into each bank's finances.

With their two weeks of exclusive negotiations due to expire tomorrow morning, an announcement that each bank is satisfied there are "no nasty surprises" contained within their respective accounts could come as early as today.

In the meantime, the value of the Westpac merger plan has dropped by about $6 billion since the deal was announced - from $66 billion to $60 billion.

Westpac's share price has been going backwards over that period and stood at $22.51 on Friday, $3.46 lower than May 12.

Based on the all-scrip terms of 1.31 Westpac shares for every St George share, that values the Dragon's stock at $29.48 compared with the initial bid price two weeks ago of $33.10.

St George ended last week at $32.32, nearly $3 higher and a 9% premium to the merger offer.

It is believed that the St George board will meet this morning to review the progress of its team's due diligence on Westpac's finances with its merger partner's directors ready to do the same thing. But the final merger implementation agreement has to go through legal and regulatory hoops that could delay formal notification to the ASX for another day or two after both boards have signed off on the document.

Neither bank has seen fit under the ASX's continuous disclosure rules to issue a statement to the exchange that their detailed investigations had uncovered any particular problem, especially on any need to increase provisions for bad corporate debts.

With St George to be released from its commitment not to talk to alternative bidders, Westpac will be watching any move by its bigger rival, National Australia Bank.

NAB chief executive John Stewart has said his bank was closely monitoring the situation, especially as a combined Westpac/St George would leapfrog over NAB as number two player in the banking league table.

The merged entity would become the country's biggest bank, overtaking long-term leader Commonwealth Bank.

NAB is also concerned that by taking out the fifth-largest bank, the position St George presently occupies, Westpac would remove the last major regional bank, restricting the other three of the Big Four banks from significantly increasing their Australian businesses as they approach market saturation with a combined 80% share.

NAB - a large shareholder in St George in the early 2000s as it sought to stymie rival ANZ's ambitions towards the Dragon - knows, however, it would have to better Westpac's price terms that offered a 28% premium over the value of the smaller bank's stock in early May.

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