May 13, 2008, 9:21 GMT
Sydney - Takeover target St George Bank on Tuesday agreed to a merger offer from Westpac Banking Corporation that would create Australia's largest financial services company.
In the all-scrip deal, which values the country's fifth largest bank at 18.6 billion Australian dollars (17.5 billion US dollars), St George would receive 1.3 Westpac shares for each of its shares.
'The proposed merger would result in increased opportunities for staff whilst maintaining both organizations as a great place to work,' St George chief executive Paul Fegan said.
It's unlikely Fegan will keep his post and its inevitable that other jobs will be shed. Westpac chief executive Gail Kelly, who was Fegan's predecessor at St George, said the new entity would have funds of 110 billion Australian dollars.
'We'll be Number One in every state except Victoria,' she said. 'Together we will have over 1,200 branches, 2,700 ATMs and together about 10 million customers.'
The new entity will own around a quarter of Australia's mortgages.
The proposed deal, which still needs approval from the competition watchdog, lit a fuse under St George shares, which ended the day 25 per cent higher. Westpac, the third largest bank, saw its shares dwindle in value by 2 per cent.
The shares had been in a voluntary trading halt since Monday.
Westpac, which along with National Australia Bank, ANZ Banking Corporation and Commonwealth Bank makes up the Four Pillars of high street banking in Australia, has been least affected by the international credit crisis that has unfolded over the past year.
St George, in contrast, has seen a 40-per-cent fall in its share value because of its perceived exposure to risk and the extra costs it has incurred in raising capital because of its size and its source of funds.
The advantage of scale that would come from merging the two banks was the narrative from Westpac chairman Ted Evans.
'Over the past year international capital market positions have once again reinforced operating from a position of strength, very robust capital and very diverse funding sources, as Westpac has,' Evans said. 'With those factors in mind, the board felt the time was right to approach St George.'
The government has banned mergers among the Four Pillars. Analysts said Westpac's move on St George would spur Westpac's rivals to bid for smaller banks that the government hasn't quarantined.
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