MAKING NEWS

Sun, 25 May 2008
St George open to other offers
ST GEORGE has left open the possibility of a higher takeover bid, beating off merger partner Westpac's demands for a substantial "break fee", despite yesterday accepting an $18-plus billion offer that will end its independence as the country's fifth largest bank.

While both banks' boards and senior executives enthusiastically pledged support for the proposal that would create a $66 billion mega-bank, the biggest in Australia, St George has given Westpac's two major rivals a chance to derail the merger.

Both Commonwealth Bank, the current market leader, and the second-ranking National Australia Bank are closely monitoring the merger. The smaller-than-expected price premium built into Westpac's all-scrip pitch gives them the option of either launching their own bids or building a potential blocking stake.

John Curtis, St George's chairman, who fronted the merger negotiations after Westpac's secret approach on Friday, made it clear yesterday the bank retained the right to accept a higher offer - even though under the terms of a two-week exclusivity clause it cannot seek out another bid.

Yesterday's announcement - involving St George's investors being offered 1.3 Westpac shares for each St George share they own, valuing the stock at $33.10 a share at Friday's closing price for Westpac - does not include the payment of a break fee by the bank if another bidder is flushed out and gains its support.

Such a fee is normally built into merger and takeover deals to discourage either party from undermining the transaction.

It is understood Westpac was pushing St George for a break fee of at least $100 million but was rebuffed as the sum might deter another party. That's despite the bid offering a 28 per cent premium to St George's share price before the approach.

Nonetheless, Commonwealth and NAB would find it hard to match Westpac's terms.

It emerged yesterday that Westpac has been stalking the "Happy Dragon" since at least 2001 - before the appointment of Gail Kelly as St George's chief executive. Ms Kelly's efforts to build the bank's share price have effectively kept it off the takeover radar, given the huge premium a bidder would have needed to pay.

Westpac had regularly dusted off its plans, its chairman, Ted Evans, said, but could not previously make the deal pay.

The poaching of Ms Kelly as Westpac's new chief executive last year, however, coincided with the global credit crunch which finally made St George affordable.

Yesterday's deal saw Westpac build in a $4 billion premium, which resulted in St George's shares soaring $6.72 - up 25 per cent - to $33.37 after trading resumed. That put a value of $18.9 billion on St George.

Westpac shares shed 86 cents to $25.11, valuing it at $47 billion, a sign the sharemarket believes the deal will go through.

But it still needs the blessing of the competition regulator and the Treasurer, Wayne Swan, both of whom will scrutinise the combined bank's large market share, particularly its 25 per cent in NSW.

SOURCE: Danny John, Sydney Morning Herald

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