Westpac, Dragon Name Date

The Age
27 May 2008
Vanessa Burrow, markets reporter

WESTPAC and St George will merge within six months, barring regulatory impediments or a competing bid for Australia's fifth-biggest bank.

After two weeks of investigative work, involving 170 Westpac executives and many more St George employees, Westpac has confirmed its offer of 1.31 shares for every St George share.

And there's a back-up plan, should another of Australia's biggest banks make a superior proposal.

Previously, National Australia Bank and Commonwealth Bank chief executives John Stewart and Ralph Norris said they were observing proceedings from the sidelines.

Yesterday spokesmen for both banks confirmed they were still in "watch and see" mode.

The timetable outlined by Westpac and St George in the merger implementation agreement estimates the proposal will go to St George shareholders by early November. Shares in the blended entity would then trade normally on the Australian stock exchange by late November.

But Westpac chief executive Gail Kelly said both banks hoped to "expedite key approvals" with regulatory bodies such as the Australian Competition and Consumer Commission.

"I believe we have an unparalleled opportunity to create the leading financial services institution in Australia and New Zealand," she said.

"Clearly this whole merger has a growth agenda . . . over time we will absolutely be looking to grow our customer base and to grow our market share."

If successful, the merger would create Australia's biggest bank, with market capitalisation of more than $60 billion. The brands St George, BankSA and Asgard would be retained.

Westpac has also committed to retaining the same number of branches and automatic teller machines, although chief financial officer Phil Coffey said savings of between 20% to 25% of St George Bank's costs were anticipated.

Revenue attrition, or the income lost because of the merger, would probably be limited to less than 5% of St George Bank's revenue, he said.

Shares in St George gained 19? to $32.51 in a negative market yesterday, and Westpac shares rose 17? to $22.68.

Examining the merger implementation agreement, Goldman Sachs JBWere analyst Elizabeth Rogers noted integration and transaction expenses were estimated at $700 million.

Pre-tax cost "synergies" that came from eliminating common infrastructure and other savings, would be between $299 and $374 million.

"As such, integration costs are two times the cost benefits," she said.

Ms Rogers placed a "hold" rating on both stocks, with a 12-month target price of $27.26 on Westpac and $29.48 on St George.

Finance Sector Union national secretary Leon Carter said any merger would result in thousands of job losses, a loss of services for customers and a loss of competition in the banking sector.

"If the Treasurer (Wayne Swan) allows this one to go through he's saying, 'it's OK to consolidate the banking sector'," he said.

"I think it's an ideal opportunity for the Federal Government to step in and say, 'That's not the sort of banking sector we want in Australia'."

St George chief executive Paul Fegan, who succeeded Mrs Kelly at St George, was unavailable for comment. However, Mrs Kelly said she was confident of receiving the approvals necessary to proceed with the merger.

"The confidence is based on the expert advice that we have," she said. "Obviously that was very much part of our process leading up to this particular merger . . . and if you actually look at the market share and the tests that would be applied in any particular geography, we fall well within those tests."

A spokesman for Mr Swan said it was not appropriate to comment on the proposed merger, because any information was market-sensitive.

LINKS

? www.westpac.com.au

? www.stgeorge.com.au

MALCOLM MAIDEN

The good news for any bank considering gate-crashing Westpac's merger-takeover of St George is that due diligence has turned up nothing untoward.

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