SYDNEY (Reuters) - Regional lender Bank of Queensland Ltd. (BOQ.AX) launched a A$2.5 billion ($2 billion) cash and stock takeover bid for rival Bendigo Bank Ltd. (BEN.AX) to create Australia’s seventh-biggest commercial bank.
The move — meant to compete better with bigger lenders such as National Australia Bank Ltd. (NAB.AX) — propelled Bendigo’s shares up 29 percent to a record close of A$17.05, below the implied offer value of A$17.91 a share.
“It’s almost a knockout bid. It is a smart but defensive move by Bank of Queensland,” said Johan Vanderlugt, an analyst with Daiwa Securities.
Bank of Queensland shares eased 0.1 percent to A$16.59.
Traders betting on more consolidation among regional banks pushed up shares in Adelaide Bank Ltd. ADB.AX 5.8 percent to A$13.75 in a higher overall market.
“Adelaide Bank really is up for grabs at some point in time,” said Vanderlugt, noting it would struggle as the smallest listed bank — if the current takeover succeeded — at a time when loan growth was slowing bad debts were rising.
Bank of Queensland, which was established in 1874 and operates through an owner-managed branch model, is offering 0.748 of its shares and A$5.50 in cash for each Bendigo share.
Bendigo Bank, formed in 1858 to help miners at the Bendigo goldfield buy homes, said its board was considering the offer and would make a decision later in the day. The bank runs a community banking model and lends predominantly in Victoria state, with some business in New South Wales and Queensland.
“The merger is important for the future of banking, particularly regional banking, in Australia,” Bank of Queensland Managing Director David Liddy said in a statement.
“It’s about recognizing the changing landscape of the Australian financial services sector, and working together to be a more effective force and an alternative for the Australian public,” he added.
If the transaction goes through, Bank of Queensland shareholders would hold about 60 percent of the combined entity. The deal would be earnings per share dilutive for Bank of Queensland in the first year.
At the offer price, Bendigo is valued at 22 times its 2007 profit, according to Reuters Estimates, compared with 15 for Adelaide Bank and 16 for Australia’s fifth-biggest bank, St. George Bank Ltd. SGB.AX.
“This is by far the best proposition both for Bendigo and Bank of Queensland shareholders, and Australian communities, offering a real alternative to the ‘big four’,” Liddy said.
Australia’s banking market is dominated by National Australia, Commonwealth Bank of Australia Ltd. (CBA.AX), Westpac Banking Corp. Ltd. (WBC.AX) and Australia and New Zealand Banking Group Ltd. (ANZ.AX). Even the smallest among the top four, Westpac, would have a market value 11 times the proposed Queensland/Bendigo tie-up.
However, regional banks have had an edge in customer service and independent research has shown level of customer satisfaction of Bank of Queensland at 88 percent and that of Bendigo at 79, well above the four major banks.
Bank of Queensland said it hoped to win the backing of the Bendigo Bank board for the deal, which it estimated would deliver some A$70 million in cost savings.
Liddy told a media conference that he did not intend to close any branches of either Bank of Queensland or Bendigo.
The combined entity would have 575 branches, making it Australia’s fifth-biggest bank by branches. The group would also control about 7 percent of Australian banks housing market.
Liddy said the deal would help the combined group to grow in regional and metropolitan markets.
Bank of Queensland is planning to raise about A$600 million through an entitlement issue to part fund the acquisition. It also plans to raise some debt.
Australia government’s “four-pillar” policy prohibits the top four banks from acquiring each other. That has encouraged some lenders such as ANZ and CBA to push into Asia.
Bank of Queensland’s offer comes at a time when Australia’s sixth-biggest lender Suncorp Metway Ltd. (SUN.AX) is sealing its A$7.5 billion purchase of insurer Promina Group Ltd.
Earlier this year, a group led by Pacific Equity Partners and Merrill Lynch Global Private Equity MER.N bid A$823 million for credit checking firm Veda Advantage Ltd. (VEA.AX).
(Additional reporting by Michael Smith)