ANZ bid for Suncorp Bank ‘a real test’ for regulator
Shareholders should not expect the competition regulator to wave through ANZ’s proposed $4.9 billion acquisition of Suncorp Bank – potentially the biggest banking deal in Australia in more than a decade, says Royal Bank of Canada’s equities boss Karen Jorritsma.
ANZ will raise $3.5 billion by selling shares at $18.90 on a 12.7 per cent discount to the bank’s last closing price of $21.64 to finance the deal, priced at 13.8 times Suncorp Bank’s profits to December 31.
“It’s going to be a real test,” Ms Jorritsma said of the Australian Competition and Consumer Commission’s view. “And people will watch the approach from the new chair [Gina Cass-Gottlieb] to see how it’s handled, given the sensitivity around the four major banks already having significant market share and pricing power.”
The deal could unlock value for Suncorp shareholders if the market assigned its core insurance business a higher profit multiple once the banking operations were sold, she said.
“It’s realistic,” she said. “The insurance business is a good business and having the mix of the bank changed the way the market looked at the business. These big financial companies like scale, so from that perspective [the broader deal] makes a lot of sense.”
Ms Jorritsma warned that management teams could decline to give guidance or hose down analysts’ expectations during August’s earnings season as cost pressures and a whipsaw macro-environment – including global rate increases, a strong US dollar and the war in Ukraine – take their toll.
“I think a lot of the sell-side brokers probably have relatively stale numbers for the past couple of months,” she said. “So this could be a real catalyst for earnings downgrades. So I think net-net, you’ll probably see [FY 2022] numbers come in line with a view to FY 2023 numbers coming in softer.
“The guidance statements are what will really be focused on. You’ve got the rate hike cycle hitting the consumer, record oil prices. So you’ve got lots of exogenous things the corporates can’t control, are they going to be happy enough to sit down and make confident statements about the outlook? Some will probably use those reasons not to.”
The global economy’s challenges and lower stockmarket valuations meant more takeover activity was likely, Ms Jorritsma said.
“There’s still a lot of money around looking for acquisitions. It’s the same in infrastructure, the second derivative infrastructure. Sydney Airport’s gone, I do think there’s a hunt for infrastructure-type assets, so I’d put Brambles and Qube in that second derivative infrastructure play.”
Ports, industrial infrastructure, and logistics services business Qube has been active in the mergers and acquisitions space selling its Moorebank Logistics Park for $1.67 billion to the LOGOS Consortium, which included Australian Super, AXA, and NSW Treasury Corp earlier this year.
In 2016, Qube completed a $9 billion deal to acquire rail haulage group Asciano in a joint bid with Canadian private equity giant Brookfield and other global investment funds.
Ms Jorritsma also said that rising rates meant the valuation split between loss-making and profitable tech companies was likely to widen.
“Those that are looking to be profitable or cash-flow break-even, I think they continue to struggle. The only thing that’ll save their share prices right now is if they get a [takeover] bid,” she said.
“Something like Megaport looks cheap given the quality of the business, I think lots of global players respect the fact it’s a good business, but it’s a fair bit from where it needs to be from a cash-flow breakeven perspective which is frustrating the market.”
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