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tdtcampusfinalsv5-12747893217547-phpapp02
Transcript of tdtcampusfinalsv5-12747893217547-phpapp02
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Presentation To Gloucester CoalLimited
The Nova Team
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Agenda
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Our Team
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Brief Background of the Westpac Offer
Consideration Proposal to exchange 1.25 WBC ordinary shares for each SGB ordinary
share
All-scrip merger
A Scheme of Arrangement (Scheme) is to be effected subject to SGBshareholders vote
Senior management team to be drawn from both banks
SGB Chairman appointed as Deputy Chairman with two other SGB Directorsto join the WBC Board
Operating model for the merged entity is to retain all WBC and SGB brandsand branches/ATM networks
A two-week Exclusivity Period to conduct reciprocal due diligence andnegotiate a Merger Implementation Agreement
Break fee of $100m is proposed
Conditions precedent An Independent Experts Report concluding the Scheme
SGB shareholders vote
Court approval and other regulatory rulings and consents
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St. George: Current Position in Market Capitalisation
C u rre n tlyth L a rg e st
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Advantages and Disadvantages of Westpac Offer
Advantages Be part of the largest market capitalisation in Australian
banking history Benefit from cheaper cost of funding using WBCs AA
credit rating
Cross-selling opportunities in the largest retail andwealth management network in Australia
Cooperate with Westpac to tackle intense competition inthe regional banking sector
Access to WBCs resources and expertise Accretive EPS for SGB
SGB shareholders obtain CGT rollover relief on the all-scrip merger
Guaranteed SGB representation in senior management
Disadvantages Potential customer attrition
Integration risks involved Staff resistance due to job security issues
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Westpac Offer: Risks Considerations
Customer
Attrition
Issue:
Existing customers leave SGB resulting in shrinkingmarket share and damaging its reputation
Recommendations:
Customer relations management
Media publicity management
Retain SGB branches and ATM networks to maintainpresence
IntegrationRisks
Issues:
Concerns over disruptions to operations during theintegration process
Culture integration issues SGB Big enough but small
enough to be customer-focused
Recommendations:
Appoint transformation advocates from both SGB andWBC
Utilise WBCs market -leading risk management
systems
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Proposed Merged Operations
Opportunities for Growth after merging with WBC Cross-selling to within the wider distribution channel in retail
banking segment
Extension of wealth management segment
More prominent presence in NSW and other states
Product & Operations
Technology
Core/Support
Merged Westpac and St. George Business Model
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How likely is the proposed model to be successful?
Key Features of the Proposed Operating Model
Multi-BrandStrategy
Minimises the risk of the large-scale disruption
Minimises customer and value leakage
Offering a broad range of products
o m m o n trate g icFra m e w o rk
H ig h e r p o ssib ility o f su cce ss in th e in te g ra tio n p ro ce ss B e tte r co n solid a tio n o f p ro d u cts a n d o p e ra tio n s
E a sie r a lig n m e n t of b u sin e ss stru ctu re s
istin ctrandP e rso n a litie s
C ate rin g to a b roa d ran g e of custo m ers
: W estpac ,A professional aspirational bank with a social
conscience . : St George A bank with humanity
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Factors Determining Whether the Merger is Successful
Customers
Customer Attrition Rate Market Share
Customer Satisfaction Index Low
Increase Maintain or Increase
Synergies
Realised Cost Synergies
Realised Revenue Benefits Realised Funding Benefits
Actual Integration Costs
Cost to Income Ratio As Expected or Higher As Expected or Higher
As Expected or Higher As Expected or Lower
Decrease
E m p lo y ee s E m p loy ee Turn ov er R ate
E m p lo y e e S a tisfa ctio n In d e x
M a in ta in o r D e cre a se
M a in ta in o r In cre a seS h areh old ers E arn in g s Pe r Sh a re S h a re Price Pe rfo rm a n ce
In cre a se
B e tte r
e y F a cto rsu c ce ssfu l W h e n
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Valuation
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Valuation Summary
:B C O ffe r.2 4 6
:u rre n t S G B.6 6 5
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Synergies
Total Benefits: $222 million
Assumptions:
Cost Synergies - 25% ofoperating expenses (Empiricalevidence of 20-30%)
Restructuring Costs- 161.5% ofcost synergies (Average ofprecedent transactions)
Funding Benefits - 48% ofDeposits and other borrowingsat 60 bp (May 2008)
Revenue Synergies - 25% of
SGB revenue $2.3 billionrealised over 10 years.
Who Benefits?
Both St. George and Westpac
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Implied Value
m p lie d V a lu e is N E G A T IV Eon sid erin g S yn erg ies
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EPS vs. Exchange Ratio Analysis
estp ac O fferG B C u rre n t E P S
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Next Steps for St. George
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Alternatives and Impact
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Alternatives and Impact
Renegotiate SGB renegotiates terms to benefit SGB stakeholders:
Higher offer price Retention of key SGB senior managementteam
SGB final dividend to be declared to SGBshareholders
No break fee of $100m at the moment Confidentiality Agreement
WBCs Potential Reaction:
Proceed to renegotiate additional terms taking intoconsideration of WBCs maximum offer price
Accept Agree on Merger Implementation Agreement
WBC Offer is communicated to SGB shareholders andprepare for shareholders vote
In the mean time, regulatory and governmentapproval processes are underway
If SGB shareholders vote in favour of the mergerproposition, a Court Approval needs to be obtained
Subsequent to the Court Approval, merger becomesofficial
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Alternatives and Impact
Reject SGB continues to grow organically, however, explorealternative funding sources
WBCs Potential Reactions: Offer a higher premium to sweeten the merger deal Abandon the merger proposition entirely Hostile takeover
SGBs Defensive Action: Super-majority shareholder voting
Delay
SGB appoints experts to perform in-depth reviews ofthe merger proposition
WBCs Potential Reactions:
Further negotiations to convince SGB Board If delay too long, WBC may change the WBC Offer orabandon the merger proposition entirely
SGBs Defensive Action: Negotiate for SGB Review Period clause including a
Confidentiality Agreement
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Other Matters
Exclusivity Period
Include an exclusivity period of two weeks to conduct reciprocal duediligence and negotiate a Merger Implementation Agreement
Break Fee
Exclude the break fee of $100million as proposed by WBC to allow SGB tohave more optimal alternatives for consideration
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Key Messages to St. George Shareholders
WBC Offer
Renegotiate the WBC Offer and additional terms with WBC All scrip-merger
Scheme of Arrangement
Merits of the merger proposition
Benefit from cheaper cost of funding using WBCs AA credit rating
Cross-selling opportunities in the largest retail and wealth managementnetwork in Australia
Outcome of the merger proposition
Accretive EPS
Retain SGB brand and branch/ATM networks
Be part of the largest market capitalisation in Australian banking history
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Other Considerations
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Other Considerations
Potential
Biddersfor SGB
Other Big Four Banks CBA, NAB and ANZ may
counter-bid the offer to acquire SGB. This willincrease the premium that WBC has to offer inorder to clinch the deal.
CBA
Huge cash surplus and high share prices
However, facing domestic competition issues
NAB
Previously a major shareholder in SGB
Could make an offer for SGB if it opts to foregooverseas expansion
However, massive capital investment has been
injected overseas
ANZ
Previously a major shareholder in SGB
However, ANZ changed its strategic focus and movedon to expanding in the Asian region
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Other Considerations
Government
Approval onthe ProposedMerger
Issues:
Possibility of monopoly subsequent to the merger ACCC may view each Australian state as a separate
banking market NSW is the main issue
WBC and SGB, combined, will be the largest amongst allthe Big Four Banks in Australia
The merger would lessen competition in the wealth
management sector possibility of reduced productdiversity for consumers
The state of Australian banking industry
Four Pillars policy maintained
Impacts on national interests
Recommendations:
Merger plan, demonstrating the impacts of the mergeron various aspects, need government approval
Bring in government lobbyists
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Final Recommendation
Renegotiate with WBC
Offer price
Retention of key SGB senior management team
SGB final dividend to be declared to SGB shareholders
No break fee of $100m at the moment
Confidentiality Agreement
SGB counter offer Starting price Lowest price
Price per SGB share $34.64 $32.65
Total consideration $19.13billion $18.03billion
Exchange ratio (WBC : SGB)1.33 : 1 1.26 : 1
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Thank you
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Relative Valuation Approach
Average CompanyP/E
CompanyP/NTA
CompanyP/B
$/Share $/Share $/ShareLow 25.24 14.44 14.44
Midpoint 36.06 20.62 20.62
High 46.88 26.81 26.81
Average 25.77
Average TransactionP/E
TransactionP/NTA
TransactionP/B
$/Share $/Share $/Share
Low 24.88 15.12 18.18
Midpoint 35.54 21.60 25.98
High 46.20 28.07 33.77
Average 27.70
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