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SYDNEY, May 16 (Reuters) - Australian financial services company IOOF Holdings Ltd said on Friday it plans to buy smaller rival SFG Australia Ltd for about A$670 million ($626.42 million), creating the country's third biggest financial advice business.
The takeover comes amid a pickup in M&A activity in Australia as businesses, buoyed by stabilising equity markets, take advantage of low interest rates and take out more debt.
It also comes a year after SFG cancelled a takeover it was planning of accounting firm WHK Group Ltd, which issued a profit warning.
SFG agreed to be taken over by IOOF, the companies said in a joint statement.
SFG shares jumped 21 percent to an all-time high of A$0.875 by 0150 GMT.
IOOF shares rose 2 percent to A$8.31.
In the statement, the companies said IOOF will pay the equivalent of A$0.90 for each SFG share via a stock-swap arrangement, representing a 29 percent premium to SFG's closing price the previous day.
The combined company will be Australia's third biggest advice business in terms of funds under advice, the companies said.
The purchase will double the size of IOOF's advice and distribution arm which will contribute 30 percent of revenue compared to its current contribution of 14 percent, IOOF Managing Director Christopher Kelaher said in the statement.
It said the SFG board unanimously recommended the deal to shareholders and would vote in favour of it at a meeting to be held in early August. ($1 = 1.0696 Australian Dollars) (Reporting by Byron Kaye; Editing by Stephen Coates and Miral Fahmy)