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St.George: bank revealed to be takeover target

16th May 2008
By Petter Ingemarsson

St.George, Australia's fifth largest bank, has been approached by Westpac for a potential merger.

On May 9, St.George was approached by Westpac with a merger offer. In a proposal that was publicly revealed three days later, Westpac is making an all stock offer to St.George shareholders. If the merger goes through, it would completely transform the Australian banking market.

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It was announced that Australia's fifth largest bank, St.George, has been approached by Westpac with a merger offer. According to the terms of the offer made public on May 12, Westpac would give 1.31 shares for every St.George share. This valued a St.George share at $33.10, which is a 28.5% premium on the closing price of the shares on the business day before the merger bid was announced.

However, shares of St.George climbed even higher than $33.10 after the news, in a sign that the markets expect an improved bid or a counter bid from another bank. Westpac shares traded somewhat lower over the week. On May 14, NAB chief executive John Stewart refused to rule out making a counter offer, noting how interesting the current times are in the financial markets.

Westpac has made its move on St.George at an opportune time, as St.George shares have recently been trading lower as a result of concerns about the global credit crisis impacting on the bank's profitability. It has been revealed that Westpac has seen St.George as a potential takeover target for several years, but had been deterred by the latter's buoyant share price.

The proposed merger still faces several hurdles. A competitor could still make a counter offer, although it would be at a disadvantage to Westpac, and the St.George board would have to approve the offer in order for it to be able to succeed. The proposed merger between the banks would also have to be approved by the treasurer, as well as by competition authority ACCC and financial regulator APRA.

If the merger goes ahead, the combined entity would become the largest home lender in Australia, leapfrogging CBA. This would radically change the dynamics of Australian banking. The merger would also lend support to calls to repeal the longstanding "Four Pillars" policy of the Australian government, which bars the biggest four Australian banks from merging with each other.
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