The board of Home Building Society Ltd has recommended its shareholders accept a takeover proposal from Bank of Queensland Ltd that values the Perth-based financial services player at $592 million.
The board of Home Building Society Ltd has recommended its shareholders accept a takeover proposal from Bank of Queensland Ltd that values the Perth-based financial services player at $592 million.
While the two groups described the proposed deal as a merger of two common entities, it marks a big change by Home which had promoted itself as the only major Western Australian financial institution left following HBOS plc's takeover of BankWest.
It is expected that one director of Home will join the BOQ board and head office functions will be rationalised.
Home shareholders will own about 20 per cent of the combined entity if the deal proceeds.
Under the proposed scheme, the Home and BOQ brands will be maintained in Western Australia for up to 18 months while the new entity establishes a regional head office in the state, potentially under a new brand.
Home chairman Tony Howarth said the deal would create a regional banking powerhouse with 270 branches, anchored in the two fastest growing states in Australia - WA and Queensland.
Mr Howarth said market consolidation was something he had always expected.
"This brings together two organisations that have a very strong regional banking culture and a great service opportunity to our customers and future customers in Western Australia around branch growth, product growth, and the ability to do more business... we want to be the leading regional bank in WA," Mr Howarth said.
BOQ managing director David Liddy said it was not a case of an eastern states raider coming into the West, but two common entities coming together.
"This is a business that is very consistent with BOQ's stated strategy. That is to be a big, small bank that differentiates itself in terms of service delivery to its customers," Mr Liddy said.
"We are culturally aligned and [this] will add more muscle in terms of product ranges to Western Australians through both the Home and BOQ delivery mechanisms."
The scheme of arrangement is expected to be implemented by January 2008.
Since moving into WA in 2004, BOQ has established branches in Perth, Subiaco, Joondalup and Applecross under its Owner Managed Branch franchise model and will shortly open a branch in Midland.
With 29 branches to its name, Home managing director Greg Wall said it was implementing an aggressive growth strategy which would add five new branches this financial year and another five within two years.
"BOQ is very keen for Home to accelerate this plan. The combined financial strength of BOQ and Home...gives us great confidence about taking our WA market share to a new level," Mr Wall said.
Founded in Fremantle in 1946, Home has grown to become one of WA's largest financial services groups with a current market capitalisation of $459 million.
The group listed on the Australian Securities Exchange in March 2002 and merged with State West Credit Society in 2006.
Under the terms of the latest merger proposal, Home shareholders will receive 0.844 new BOQ shares plus $2.80 cash for each share, representing a total consideration of $18.20 per share.
Mr Wall said he would remain managing director of Home during the planned integration period before discussing his tenure with the board and BOQ in about six months time.
The full text of a joint announcement is pasted below
Home Building Society recommends $592m BOQ merger proposal
Bank of Queensland today announced a proposal to acquire all the issued shares and options in Home Building Society Limited which values Home at $592 million.
The Board of Home unanimously recommends that all Home shareholders support the proposal subject to an Independent Expert determining that the merger is in the best interests of Home shareholders and in the absence of a superior proposal.
Home Board members intend to vote in favour of the proposal in relation to their personal shareholdings in Home, in the absence of a superior proposal.
The Proposal
Under the terms of the proposal, to be implemented via a scheme of arrangement, Home shareholders will receive for each Home share they own:
- 0.844 new BOQ shares; and
- $2.80 cash.
The Offer represents a total consideration of $18.20 per Home share and a substantial premium of 29% based on Home's and BOQ's closing share prices of $14.11 and $18.25 respectively at Thursday, August 30 2007.
The Merger
Under the terms of the merger agreement, Home shareholders will own approximately 20% of the expanded group.
Following the merger, BOQ will also continue to grow the network strongly in WA, though with significantly enhanced resources and financial capability.
The merged entity will retain a regional head office in Perth and continue to trade under its existing brand for up to 18 months while consideration is given to determining the best trading brand for the long term.
Home Chairman Tony Howarth said the merger proposal represented an outstanding opportunity for Home's customers, staff and shareholders, who have enjoyed Total Shareholder Return of 42.4% since demutualisation and now have another outstanding growth opportunity.
"BOQ's offer provides Home shareholders with the opportunity to be part of an Australian banking success story when it comes to growth, both in value and in the business itself," Mr Howarth said. "We have a shared vision of being a genuine alternative to the big banks and by joining with BOQ we can be an even more competitive force in the West Australian banking sector.
"Importantly, BOQ offers the same customer focus, culture and drive as Home for shareholders, customers and staff and a partnership anchored in the two fastest-growing states in Australia. This is about bringing the very best in service, products and customer access to a growing branch and business banking network where we can create new jobs and new opportunities," Mr Howarth said.
"Home's Board is unanimous in its belief that this merger with BOQ offers the best opportunity for Home shareholders to maximise the value of their investment while also becoming part of a similar, regionally-based financial institution which has strong roots in community banking."
BOQ Chairman Neil Roberts said the merger would make Home shareholders significant partners in BOQ's future growth and allow them to benefit from the national footprint and unique business model of the bank.
"BOQ shareholders have benefited from Total Shareholder Returns in excess of 24% per year for the last five years, growth in market capitalisation from $400 million to approximately $2 billion and an expanding national network of branches and business banking which has successfully taken on the big banks over the last six years," Mr Roberts said.
"BOQ shareholders benefit from a merger which will see a substantial increase in our presence in Western Australia, the fastest growing State in the country. Importantly, the merger is expected to be cash Earnings per Share accretive for BOQ on a normalised basis in FY2009.
"The structure of the proposal provides Home shareholders with access to potential tax advantages via Capital Gains Tax roll-over relief," Mr Roberts said. "We are also delighted to invite a member of the Home Board to join the BOQ Board."
Home Managing Director Greg Wall said the merger would provide a springboard for additional growth in WA.
"We are currently implementing an aggressive growth strategy that will see five new branches opened in the current financial year, with plans for an additional five within 2 years," said Mr Wall.
"BOQ is very keen for Home to accelerate this plan. The combined financial strength of BOQ and Home will provide the Home business with greater financial strength and enhanced product offerings, and this gives us great confidence about taking our WA market share to a new level."
BOQ Managing Director David Liddy, who was in Perth for the announcement, said the merger of BOQ and Home Building Society would create a regional banking powerhouse centred on the two strongest growing State economies in the country.
"The success of the merger going forward will be the marriage between BOQ's unique franchise-based branch model and Home's extensive Western Australian network of 29 branches," Mr Liddy said.
"This will provide us with a strong platform to build the business here in Western Australia, opening more branches and business banking centres as we continue our rapid expansion in the State."
BOQ's Owner Managed Branch (OMB) franchise model allows local bankers to own and operate local branches, while retaining the security and strength of a bank.
"We already have four, soon to be six, OMBs in Western Australia and our first, Subiaco, is the fastest-growing branch in our national network," Mr Liddy said.
"This gives customers the best of both worlds - the products, reach and range of a national bank network with the service and local knowledge of a small regional bank. It will mean access to a raft of new banking products for Home customers, including margin lending and a broad range of business banking products for SMEs, and equipment and debtor finance products.
"This is no big bank takeover, but a merger of two similar organisations to create an even more competitive force in the WA market and a real alternative to the major banks."
The merged entity would continue to run both BOQ and Home-branded branches for up to 18 months during integration while ascertaining the best brand to use going forward.
Mr Liddy said there was very little overlap between the two existing branch networks and BOQ will also retain a significant regional headquarters in Perth following the merger.
"Bank of Queensland is about opening branches and building a business, not slashing and burning, so this merger will mean a strong future for regional banking in Western Australia," he said. "Home's expansion plans, coupled with our own, will see us become the real alternative bank for WA.
"Our successful mergers and acquisitions over the last five years demonstrate that we know how to undertake an integration of this type with sensitivity while maximising the strengths of the organisations and maintaining their strong involvement with the local communities."
BOQ already has a growing business banking presence in WA, particularly in the booming areas of equipment and debtor finance and will expand this significantly following the merger. BOQ also has a strong relationship with the State's largest health insurance provider, HBF, for which it provides banking products for its members.
Benefits to Home shareholders
- 29% premium to Home's closing share price of $14.11 on 30 August 2007 based on BOQ's closing price of $18.25;
- 32% premium to Home's 30 day VWAP of $13.14 and based on BOQ's 30 day VWAP of $17.23;
- Access to potential Capital Gains Tax roll-over relief available to Home shareholders in relation to the scrip component of the proposal consideration;
- The opportunity to own approximately 20% of the merged BOQ-Home entity and participate in a successful company that will have a strong presence in Queensland and Western Australia, and benefit from future synergies resulting from the merger;
- The ability to participate in BOQ shares which offer significantly increased liquidity relative to Home's present share trading liquidity; and
- Entitlement to Home's FY2007 final dividend of 24 cents and access to BOQ's FY2008 interim dividend following completion of the merger.
Benefits to BOQ shareholders
- Significantly enhanced presence in Western Australia, one of the fastest growing economies in Australia;
- Expected to be cash Earnings per Share accretive on a normalised basis in FY2009;
- Larger scale and greater geographic diversification of earnings; and
- Future cost synergy benefits anticipated from the merger through the conversion of Home branches to BOQ's Owner Managed Branch model, consolidation of technology platforms and back office functions with further potential revenue synergies through cross-selling opportunities of BOQ's existing products to Home's customer base.
Merger Implementation Deed
BOQ and Home have entered into a Merger Implementation Deed under which they have agreed to proceed with the proposal by way of a scheme of arrangement between Home and its shareholders. The proposal is subject to support of Home shareholders, regulatory and court approvals, satisfactory completion of due diligence and other conditions customary for a public transaction of this nature.
The scheme of arrangement is expected to be implemented by January 2008. The Merger Implementation Deed has also been released to the ASX separately.
