Australian Banks Unveil $3.55 Bn Merger Plan

"We have that golden opportunity, we are not going to miss it," St George Bank managing director Jim Sweeney told reporters at a joint news conference.

This is the fifth merger St George has tried with different banks in the past two years.

"We are going to build a special new different bank here that will take advantage of all of things that many of us always want to do," said Sweeney, who will head the enlarged group.

Advance Bank shareholders would be offered a combination of A$2.10 in cash, a 20 cent special cash dividend and new St George shares up to a value of A$5.00 per Advance Bank share.

 

The total value of the offer was A$7.30 per Advance share, which values it at A$2.65 billion.

St George would fund the offer by a mixture of cash and scrip and a new capital raising. The friendly merger of the two Sydney-based banks would create a bank with assets of A$40 billion and make it one of Australia's top 25 listed companies.

"The Australian banking industry is currently going through a very dramatic stage, we cannot be sure what will come out

the other end, but we believe this will allow us to make the most of opportunities that the market change present," Sweeney said.

Advance bank shares soared on the merger announcement. It closed 57 cents or nine percent higher at A$6.85, a record close. St George shares ended 40 cents or 4.5 percent lower at A$8.55, after hitting a low of A$8.30 during the day.

Australian banking analysts said that the offer was generous to Advance shareholders because it was well above prices paid in recent local banking take-overs.

Any rival bidders might be scared off entering the fray by a current official inquiry into the banking industry and an agreement, part of the merger deal, for Advance to pay A$100 million to St George if it is taken over by a third party.

"I think that would make it unattractive for somebody else to come in and make a bid," said Linda Lyon, banking analyst at brokers BNP Equities.

St George has been desperately seeking a friendly merger over the past two years to avoid being swallowed up itself. The stock market viewed Australia's largest banking group, National Australia Bank Ltd (NAB), as the most likely predator. NAB holds 6.8 percent of St George although it has said it had no take-over plans for the Sydney bank.

However, in June it voted against a plan for St George to merge with Queensland based Metway Bank Ltd. NAB declined to comment on Monday's announcement.

St George's bid for Metway was also was scuttled by the Queensland government, which trumped St George's offer with a higher bid through its wholly-owned financial services group Suncorp and the Queensland Industry and Development Corp (QIDC).

Last year, St George was also blocked by Westpac Banking Corp, one of Australia's top banks, in a takeover bid for Perth-based Challenge Bank Ltd after Westpac made a higher offer.