UBS Investment Banking Finals Presentation

8/8/2019 UBS Investment Banking Finals Presentation

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An Analysis of the Westpac Offer to St. GeorgeThe Dream 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 SGB

shareholders 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 brands

and branches/ATM networks A two-week Exclusivity Period to conduct reciprocal due diligence and

negotiate 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 tly th L a rg e st
http://images.google.com.au/imgres?imgurl=http://internationalbs.files.wordpress.com/2009/05/anz-logo.jpg&imgrefurl=http://internationalbs.wordpress.com/2009/05/12/please-dont-remember-us/&usg=__BIWg7o36d5bN8HO71ERZB3I3GJc=&h=340&w=1181&sz=37&hl=en&start=10&sig2=okyS2nNFouQeXQpGIGtNaA&um=1&itbs=1&tbnid=Iik-mPu_6ZMPnM:&tbnh=43&tbnw=150&prev=/images?q=ANZ+old+logo&um=1&hl=en&sa=N&rls=com.microsoft:en-ph:IE-SearchBox&rlz=1I7GGLL_en&tbs=isch:1&ei=Yt_bS-PgDJOekQWqiOGqBwhttp://www.commbank.com.au/http://www.nab.com.au/?ncID=ZBAhttp://www.ubs.com/


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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 AAcredit 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 maintain

presence

IntegrationRisks

Issues: Concerns over disruptions to operations during the

integration process Culture integration issues SGB Big enough but small

enough to be customer-focused

Recommendations: Appoint transformation advocates from both SGB and

WBC 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 tra te g icF ra m e w o rk

H ig h e r possib ility o f su cce ss in th e in te g ra tion p roce ss B e tte r co n solid a tion o f p rod u cts a n d op e ra tion s

E asie r a lig n m en t of b u sin e ss stru ctu re s

is tin c t r a n d

P 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

LowIncrease

Maintain or Increase

Synergies

Realised Cost Synergies

Realised Revenue Benefits Realised Funding Benefits Actual Integration Costs Cost to Income Ratio

As Expected or HigherAs Expected or Higher

As Expected or HigherAs Expected or Lower

Decrease

E m p lo y e e s

E m p loy ee Turn ov er R ate

E m p loye e S a tisfa ction In d ex M a in ta in or D e cre a se M a in ta in o r In cre a se

S h a re h o ld e rs 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 rs u 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% of

operating expenses (Empiricalevidence of 20-30%)

Restructuring Costs - 161.5% of cost synergies (Average of precedent transactions)

Funding Benefits - 48% of Deposits 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 Va lu e is N E G AT IV E o n s id e rin g S y n e rg ie s
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EPS vs. Exchange Ratio Analysis

e s tp a c O ffe r G 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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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 into

consideration of WBCs maximum offer price

Accept Agree on Merger Implementation Agreement WBC Offer is communicated to SGB shareholders and

prepare for shareholders vote In the mean time, regulatory and government

approval processes are underway If SGB shareholders vote in favour of the merger

proposition, a Court Approval needs to be obtained Subsequent to the Court Approval, merger becomes

official
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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 of the 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 due

diligence and negotiate a Merger Implementation Agreement

Break Fee Exclude the break fee of $100million as proposed by WBC to allow SGB to

have 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 management

network 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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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 forego

overseas expansion However, massive capital investment has been

injected overseas

ANZ Previously a major shareholder in SGB However, ANZ changed its strategic focus and moved

on to expanding in the Asian region
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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 all

the 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 merger

on 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 pricePrice per SGB share $34.64 $32.65Total 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 ApproachAverage Company

P/ECompanyP/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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UBS Investment Banking Finals Presentation

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