Samuel gives approval to St George bid

AAP - Independent expert Grant Samuel says the current upheaval in global financial markets makes it "extremely difficult" to make short-term estimates of the key value drivers for takeover target St George Ltd.

The bank's board has recommended a $17 billion offer for the institution by Westpac
Banking Corporation and it was revealed earlier this month that the independent
expert had determined that the offer was fair and reasonable.
According to a full copy of Grant Samuel's assessment, released Monday, the expert
said estimating key value drivers such as underlying levels of asset growth, funding
costs and net interest margins "with any degree of reliability" was difficult.
Further uncertainty exists over Australian banks accessing sufficient wholesale
funding to replace maturing lines of wholesale funding, and their ability to meet
asset growth requirements, Grant Samuel added.
Grant Samuel has assessed St George's current valuation at between $30.13 and $33.40
per share based on an estimated market value of Westpac's shares of between $23.00
and $25.50.
While the bottom end of the value of the consideration is slightly below the bottom
end of the value range for St George, it is the range rather than an individual
price that is relevant, Grant Samuel said.
"There is a very substantial degree of overlap and over 85 per cent of the value
range for the consideration falls within the St George valuation range," Grant
Samuel said.
"Accordingly, the Westpac proposal is 'fair' and therefore 'reasonable'."
Westpac's shares Monday fell by 3.46 per cent, or 3.46 per cent, to finish at
$23.15, while St George's shares closed 2.54 per cent lower at $30.70.
The expert opinion is included in a scheme booklet to be sent to St George
shareholders in mid October ahead of a vote on the merger proposal in Sydney on
November 13.
Under Westpac's offer, St George shareholders will receive 1.31 Westpac shares for
each St George share they own, a 97 cent final dividend for the year to September
30, 2008, and a special dividend of up to $1.25 per St George share.
In the absence of the Westpac takeover bid, St George's share price would have
fallen in line with the recent rerating of the sector, and probably by at least as
much as Westpac's share price, Grant Samuel said, adding that this rendered the
takeover premium still intact.
A stand-alone St George would currently be trading at less than $25.00, the expert
added.
Grant Samuel thinks if wholesale credit markets remain frozen, the flow through of
incremental funding costs will impact St George's earnings growth relative to the
major banks.
As well, the likelihood of another party making a superior bid is relatively low,
the expert said.
The bank's board has unanimously recommended shareholders approve the deal, which,
if successful, will lead to the biggest takeover in Australian banking history.