An Analysis of the Westpac Offer to St.

George
The Dream Team

Agenda

2

Our Team .

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 Directors to 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 Expert’s Report concluding the Scheme SGB shareholders’ vote Court approval and other regulatory rulings and consents ♦ ♦ ♦ .

George: Current Position in Market Capitalisation C u rre n tly 5 th L a rg e st 5 .St.

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 WBC’s AA credit rating Cross-selling opportunities in the largest retail and wealth management network in Australia Cooperate with Westpac to tackle intense competition in the regional banking sector Access to WBC’s resources and expertise Accretive EPS for SGB SGB shareholders obtain CGT rollover relief on the allscrip merger Guaranteed SGB representation in senior management Integration risks involved Staff resistance due to job security issues  Disadvantages ♦ Potential customer attrition ♦ ♦ 6 .

Westpac Offer: Risks Considerations Customer Attrition  Issue: ♦ Existing customers leave SGB resulting in shrinking market share and damaging its reputation   Recommendations: ♦ Customer relations management ♦ Media publicity management ♦ Retain SGB branches and ATM networks to maintain presence  Integration Risks  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 WBC’s market -leading risk management systems  7 .

Proposed Merged Operations Merged Westpac and St. George Business Model Product & Operations Technology Core/Support  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 8 .

How likely is the proposed model to be successful?  Key Features of the Proposed Operating Model ♦ ♦ ♦ Minimises the risk of the large-scale disruption Minimises customer and value leakage Offering a broad range of products  Multi-Brand Strategy C om m on S tra te g ic F ra m e w o rk D istin ct B ra n d P e rso n a litie s ♦H i h e r p o ssi i i o f su cce ss i th e i te g ra ti n p ro ce ss g b l ty n n o ♦B e tte r co n so l d a ti n o f p ro d u cts a n d o p e ra ti n s i o o ♦E a si r a l g n m e n t o f b u si e ss stru ctu re s e i n ♦C a te ri g to a b ro a d ra n g e o f cu sto m e rs n ♦W e stp a c : “ A professional. aspirational bank with a social conscience” ♦St. George: “A bank with humanity” ♦ 9 .

Factors Determining Whether the Merger is Successful ♦ ♦ ♦ ♦ ♦ ♦ ♦ ♦ K e y F a cto rs S u cce ssfu l W h e n Customer Attrition Rate Market Share Customer Satisfaction Index  Low  Increase Realised Cost Synergies  Maintain or Realised Revenue Benefits Increase  Customers  Synergies E m p lo y e e s S h a re h o ld e rs Realised Funding Benefits Actual Integration Costs Cost to Income Ratio  As Expected or Higher ♦E m p l ye e Tu rno veAs Expected or Higher o r R a te ♦E m p l ye e S a ti cti Expected or Higher o sfa As n I d e x o n  As i ta i o r Dorcre a se M a Expected e Lower n n  n Decrease n n ♦E a rn i g s Pe r S h a reM a i ta i o r I cre a se n ♦S h a re Pri Pe rfo rm a n ce ce I cre a se n B e tte r 10 .

Valuation 11 .

4 6 C u rre n t S G B : 2 6 .6 5 12 .Valuation Summary W B C O ffe r: 3 2 .

5% of cost synergies (Average of precedent transactions) Funding Benefits .Synergies    Total Benefits: $222 million Assumptions: Cost Synergies .25% of operating expenses (Empirical evidence of 20-30%) Restructuring Costs.3 billion realised over 10 years. ♦ ♦ ♦ ♦ ♦  Who Benefits? Both St. George and Westpac 13 ♦ ♦  .161.25% of SGB revenue $2.48% of Deposits and other borrowings at 60 bp (May 2008) Revenue Synergies .

Implied Value Im p lie d V a lu e is N E G A T IV E co n sid e rin g S y n e rg ie s 14 .

Exchange Ratio Analysis S G B C u rre n t E P S W e stp a c O ffe r 15 .EPS vs.

Next Steps for St. George 16 .

Alternatives and Impact 17 .

regulatory and government approval processes are underway If SGB shareholders vote in favour of the merger proposition. merger becomes official 18  WBC’s Potential Reaction:  Accept ♦ ♦ ♦ ♦ ♦ ♦ ♦  .Alternatives and Impact  Renegotiate ♦ SGB renegotiates terms to benefit SGB stakeholders: ♦ Higher 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 ♦ Proceed to renegotiate additional terms taking into consideration of WBC’s maximum offer price Agree on Merger Implementation Agreement WBC Offer is communicated to SGB shareholders and prepare for shareholders’ vote In the mean time. a Court Approval needs to be obtained Subsequent to the Court Approval.

however. explore alternative funding sources WBC’s Potential Reactions: ♦ Offer a higher premium to sweeten the merger deal ♦ Abandon the merger proposition entirely ♦ Hostile takeover   SGB’s Defensive Action: ♦ Super-majority shareholder voting    Delay ♦   SGB appoints experts to perform in-depth reviews of the merger proposition WBC’s Potential Reactions: ♦ Further negotiations to convince SGB Board ♦ If delay too long.Alternatives and Impact  Reject ♦  SGB continues to grow organically. WBC may change the WBC Offer or abandon the merger proposition entirely  SGB’s Defensive Action: ♦ Negotiate for “SGB Review Period” clause including a Confidentiality Agreement   19 .

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 20 .

Key Messages to St. George Shareholder’s 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 WBC’s 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   ♦ 21 .

Other Considerations 22 .

Other Considerations Potential Bidders for SGB   Other Big Four Banks – CBA. ANZ changed its strategic focus and moved on to expanding in the Asian region  ♦ 23 . massive capital investment has been injected overseas   ANZ ♦ Previously a major shareholder in SGB ♦ 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.   CBA ♦ Huge cash surplus and high share prices ♦ However. This will increase the premium that WBC has to offer in order to clinch the deal. NAB and ANZ – may counter-bid the offer to acquire SGB.

combined.Other Considerations Government Approval on the Proposed Merger   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. demonstrating the impacts of the merger on various aspects. 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 product diversity for consumers   The state of Australian banking industry ♦ “Four Pillars” policy maintained ♦ Impacts on national interests ♦ Recommendations: ♦ Merger plan. need government approval ♦ Bring in government lobbyists ♦   24 .

Final Recommendation  Renegotiate with WBC ♦ Offer price        SGB counter offer Starting price Price per SGB share $34.13billion Exchange ratio (WBC : SGB)1.33 : 1 Lowest price $32.64 Total consideration $19.03billion 1.26 : 1 ♦ ♦ ♦ ♦ ♦ 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 25 .65 $18.

Thank you 26 .

6 4.GDP Forecast Year Actual 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1990 to 2007 Australia 0.3 2. A -2 0 0 p o w e st G D P co u ld h a p p e n is ssu m % tiofn2: 0 0 7 .4 I 2011F 4. It fo llo w s 1 9 9 5 a n d 1 9 9 6 w h e n th e e co n o m y fa lls fro m t e m e n t fro m o n e y e a r to a n o th e r y e a r is o n a g ra d u a l b a sis to th e m a x im u m ( 1 2 0 27 .7 4. sia n F in a n cia l C risis .9 D 2009F 4.8 I 2015F 4.8 I 2008 to 2018 3.9 2008F -3.2 2.4 3.7 3.95 GDP (%) % change 517% 48% 24% -28% -18% 37% 24% -9% -40% 48% -14% 9% -46% 42% -11% 63% 26% 200% I/D D I I I D D I I D D I D I D I D I E u ro p e a n E x ch a n g e R a te C risis .1 I 2010F 4.13 G lo b a l F in a n cia l C risis .7 2.7 I 2016F 4.7 3.5 3.5 3.6 2.8 D 2014F 3.5 1.6 D 2018F 3. A Year Forecast Australia GDP (%) I/D 2007A 3.2 3.9 2.6 3.6 -0.3 D 2017F 2.7 4.9 2.4 D 2013F 2.7 I 2012F 3.

Relative Valuation Approach Average Company P/E $/Share 25.77 Company P/NTA $/Share 14.81 Low Midpoint High Average Average Transaction P/E $/Share 24.12 21.44 20.44 20.62 26.70 Transaction P/NTA $/Share 15.62 26.54 46.81 Company P/B $/Share 14.60 28.06 46.88 35.20 27.88 25.07 Transaction P/B $/Share 18.24 36.18 25.98 33.77 Low Midpoint High Average .

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