St George Bank and Westpac have decided to move from being engaged, to marriage, subject of course to no other suitor popping along with a better offer.
The odds of that happening seem remote, given the malaise gripping overseas banking sectors and the distraction possible rivals here (the ANZ, Commonwealth and National Australia Bank), are facing.
The 1.31 Westpac shares for every St George share offer looks like succeeding; topped up with final dividend and a special dividend of up to $1.25 a share from St George to its shareholders. The special dividend will be up to 28c a share.
That’s an extra $160 million for shareholders and seems to be an additional payment to win them over and add some ‘juice’ to Westpac’s offer.
The 1.31 WBC shares for every 1 SGB share remains in place, so effectively St George management and the board are sweetening the Westpac offer by way of the special dividend. In some respects it’s a bit like paying for your own takeover.
Westpac chairman Ted Evans said in a statement yesterday that the two banks had agreed on measures to enhance the certainty of a successful outcome of the proposed merger, including accelerating integration and transition planning.
The amount and other details of the special dividend will be announced when St George releases its annual results and the 2008 final dividend is announced on October 29.
Westpac agreed to the payment of the special dividend by St George as long as the aggregate amount of the special dividend and the final dividend does not exceed $1.25 per St George share.
Yum went the market, a deal, at last. So St George shares rose by more than $1.40 to close at $31.89 (up 4.7%) after being as high at $32.20. Westpac shares rose $1.23c or 5.3% to $24.58.
Based on that price for Westpac, and including the final dividend, and special dividend of a total of $1.25 a share, the offer is worth $33.45 a share, which is getting close to the value of the original bid when announced in May and when Westpac and St George shares were higher.
But with the overall market up strongly by more than 3.5% on the bailout and takeover of Fannie Mae and Freddie Mac by the US Government, you’d have to say both Westpac and St George would have been strong performers yesterday anyway.
Certainly the early boost from the rescue of Fannie and Freddie was in financial stocks as the US Government move has removed the horrific prospect of default and financial chaos from the market’s thinking: something that was weighing on the sector here, in the US and elsewhere.
St George’s board revealed the dividends after accepting the advice from independent expert, Grant Samuel that it was a good deal for the bank’s shareholders. (It would have been real news if Grant Samuel had had said no it wasn’t OK, wouldn’t it?)
Grant Samuel said the Westpac offer was "fair and reasonable”, according to joint statements yesterday from the two banks.
The merger has been ticked off by the Australian Competition & Consumer Commission which approved the bid last month.
St George shareholders will now vote on Westpac’s bid in mid-November.
Westpac maintains it will continue to operate St George as an independent business and brand.
"The St George board believes that the merger of St George and Westpac, on the terms proposed, is a very positive outcome for St George shareholders," St George chairman John Curtis said in a statement accompanying a 128 page filing with the ASX.
"Our board unanimously recommends that shareholders vote in favour of the merger, in the absence of a superior proposal," Mr Curtis said.
He said the revised offer recognised the contribution of St George to the strength of the combined group.
The revised offer includes a break fee of $100 million payable by St George to Westpac in certain circumstances.
