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Australia's Bendigo Bank plans to buy rival regional lender Adelaide Bank in an all-share deal worth about A$1.9 billion ($2.2 billion) that could trigger further consolidation in the sector.
The proposed deal comes less than two months after Bendigo rejected a sweetened takeover offer from fellow regional lender Bank of Queensland, and sent Adelaide Bank shares surging as much as 25 per cent to a record A$18.
Bendigo Bank shares gained 2.7 per cent to a two-month high of A$16.94, while Bank of Queensland was up 7 per cent amid speculation that it also could be in the mood for a deal.
Ratings agency Standard & Poor's boosted its ratings outlook for both Bendigo Bank and Adelaide Bank to positive from stable.
"The positive rating outlooks ... reflect the possibility that the ratings on the combined entity will be raised by one notch in the next two years as the benefits from the proposed transaction are progressively realised," said S&P analyst Sharad Jain.
Under terms of the deal, Adelaide Bank shareholders would get 1.075 Bendigo Bank shares for every Adelaide Bank share. Based on the share swap, Bendigo values Adelaide Bank at A$17.73 a share, a 23 per cent premium over Adelaide's last price before the deal was announced.
Australian banks have enjoyed strong demand for loans following 16 years of economic expansion that have pushed unemployment to a three-decade low.
The merged group - to be known as Bendigo and Adelaide Bank - would have A$43 billion in loans and a market value of A$4 billion, with more than 4000 staff and 380 branches. The new bank would rank seventh among the country's lenders by market value.
Australia's banking sector is dominated by the big four lenders - National Australia Bank, Commonwealth Bank, ANZ Banking Group and Westpac Banking Corp - which account for about 80 per cent of Australia's banking assets.
Competition rules prevent the big four from acquiring each other, and would also make it difficult for any of them to buy a smaller player.
Adelaide Bank said its directors supported the Bendigo deal in the absence of a superior proposal.
Bank of Queensland, recently rebuffed by Bendigo, is the most obvious potential rival suitor. It is also viewed as a possible takeover target.
Other potential acquirers in the Australian banking market include No 5 player St George Bank and banking and insurance group Suncorp-Metway. The Australian unit of Britain's HBOS has also planned aggressive expansion.
While competition is fierce, credit quality is deteriorating as interest rates have risen to a decade high of 6.5 per cent.
Bendigo reported a 4.4 per cent rise in full-year profit yesterday while Adelaide Bank's annual profit rose by 11 per cent.
"The merger will bring together specialist skills that have been separately developed. The group will retain and continue to grow both brands," Bendigo Bank chairman Robert Johanson said.
Johanson will be chairman of the combined group, while Rob Hunt, managing director of Bendigo, will be group managing director until July 1, 2009.
The deal is subject to approval by Adelaide Bank shareholders.
- Reuters
