Giles Parkinson: Sydney view

Bankers stung by Pac-Man's buying game

By GILES PARKINSON

Remember Pac-Man? It was a round yellow creature with a big mouth that used to charge around a maze gobbling up small dots and evading four colourful monsters called Inky, Blinky, Pinky, and Clyde.

The Australian corporate arena has had its own Pac-Man for a few years now - Colonial chief executive Peter Smedley, who has well and truly earned his nickname after gobbling up 17 companies since he inherited the top job in 1993.

It's also got its own Inky, Blinky, Pinky and Clyde of the banking industry - The Commonwealth Bank's David Murray, ANZ's John McFarlane, Westpac's David Morgan and National Australia Bank's Frank Cicutto.

One of the curiosities of the Pac-Man game was that every now and again the creature could turn the tables on the monsters by eating a Power Capsule, enabling it to overpower them and score extra points.

Smedley was on the verge of doing just that. After adding $6 billion in funds under management with the purchase of funds manager Stuart Ivory, he was poised to snap up Bank of Scotland's majority stake in BankWest and take over the Perth-based instititution in a deal worth $2.6 billion.

The move would have given Colonial real clout in the West and threatened to lift it to near-level pegging with the big four. It was time for Inky, Blinky, Pinky and Clyde to act.

Westpac does not appear to have made an approach to Colonial, but informal offers are believed to have been made on behalf of NAB and ANZ.

With a cash offer of that size out of the question for all of the banking monsters, only CBA, because of its strong share price, had the currency to interest the Colonial board.

The agreed deal, with a stated worth of $A8.2 billion, is by far the biggest in Australian corporate history.

It will forever change the dynamics of an industry recently dominated by NAB and AMP.

The deal creates the biggest bank in the country, the biggest retail and wholesale funds manager and the second-biggest manager of allocated pensions and annuities, and it remains the third-biggest group in terms of assets and new insurance premiums.

It means that one year after the retirement of the formidable Don Argus, David Murray (or Inky to his arcade game fans) is the main man in the Australian banking industry, and the leading figure in the battle to change Government policy banning mergers among the big four.

The futility of that law is plain to see in the fineprint of the CBA-Colonial deal. It will result in savings of up to $300 million a year. But that means 2500 jobs will go and up to 250 branches will close.

Instead of merging with each other, Inky, Blinky, Pinky and Clyde will simply be forced to try to gobble up everything else.

Both NAB and ANZ have built near 10 per cent stakes in regional bank St George, the Bank of Scotland stake is presumably still for sale to a high bidder, and Adelaide Bank and Queensland's Suncorp Metway may become targets too.

The biggest action threatens to occur around the rubble of AMP's disastrous takeover of GIO Australia, which has left what will now be Australia's second biggest funds manager in a weak position.

In the past few days, AMP shares have jumped 15 per cent and NAB's have fallen nearly 10 per cent in the belief that an offer is the most obvious of NAB's options.

AMP has already confirmed that NAB made an informal offer last September. The AMP board simply wants more money.

Pac-Man may well have been eaten, but the game is not over yet.

And as for Smedley, he seems set to go quietly and pursue a career in the boardrooms of the nation, although the conversion of his options will present him with a handy farewell gift of nearly $20 million.

But unlike AMP's George Trumbull, his shareholders will not begrudge him a cent.

The maths is simple. Their shares have jumped from $A2.60 since their listing and were trading at $A7.76 by the close of trade on Friday.

That's a threefold return and three times as much as that enjoyed by the former members of National Mutual and the AMP Society since their respective listings.

* Giles Parkinson is deputy editor of the Australian Financial Review.