BOQ ANNOUNCES ACQUISITION OF ME BANK AND CAPITAL RAISING

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     BOQ to acquire 100% of ME Bank for $1.325bn, creating a compelling alternative to
    the big banks
     A transformational acquisition which is strategically aligned
    o Expected to deliver material scale, broadly doubling the Retail bank and
    providing geographic diversification
    o Strong complementary trusted brands, with shared customer-centric
    cultures and differentiated customer segments
    o Clear pathway to a scaled, common, cloud based digital Retail bank
    technology platform
     Financially compelling
    o Expected to be low double-digit to mid-teens cash EPS accretive including
    full run-rate synergies in the first year (FY22)1
    o Expected to be cash ROE accretive, by over 100bps including full run-rate
    synergies in the first year1
    o Anticipated annualised pre-tax synergies of $70 - $80m
     Acquisition to be fully funded through a $1.35bn equity raising
     BOQ’s transformation is continuing to deliver results with improved FY21 outlook
    and third consecutive half of improved performance2
    Monday, 22 February 2021, Brisbane: Bank of Queensland Limited (BOQ) today announced it has
    entered into an agreement to acquire 100% of Members Equity Bank Limited (ACN 070 887 679) (ME
    Bank) for cash consideration of $1.325bn. The acquisition will be funded by an underwritten capital
    raising of $1.35bn.

    1
    FY2022 pro forma EPS accretion on an underlying cash EPS basis assuming the Acquisition is effective from 1 September 2021. Excludes
    transaction and integration costs and amortisation of acquired intangibles. ME Bank AT1 capital notes are treated as equity for accounting
    purposes. Associated dividend payments are not reflected in earnings and therefore not reflected in the EPS calculations. Calculated in
    accordance with AASB 133, with adjustments to reflect the bonus element of the Offer. Based on market consensus earnings for BOQ.
    2
    Excluding the impacts of the Acquisition and subject to no material change in market conditions.
    Page 2
    Chairman Patrick Allaway stated, “Today’s announcement is another major step in our strategy to be
    the leading customer-centric alternative to the big banks. With the addition of the ME Bank business,
    BOQ now has material scale and a compelling growth platform to support this ambition. The
    combination of our highly complementary businesses brings together two organisations with a
    shared purpose and values generating greater value for customers, employees and
    shareholders. This is underpinned by the successful revitalisation of the bank since early 2020 with
    the team’s strong execution capabilities being reflected in our earnings progress to the half."
    Managing Director and CEO Mr George Frazis said, “This is a defining acquisition in our ongoing
    transformation of BOQ, benefitting our shareholders, customers, and people. Critically, ME Bank
    delivers material scale, broadly doubles our Retail bank, and provides geographic diversification. The
    ME Bank brand is also a great fit with the BOQ and Virgin Money brands, creating customer-centric
    alternatives in Australia.
    “It is an exciting day to see two strategically and culturally-aligned businesses come together and we
    look forward to continuing to build ME Bank’s strong brand, accelerate growth and create new
    opportunities for our people and the Group.
    “We are on track with our strategic transformation and we anticipate that the combination of the
    two businesses will enable us to accelerate our digital strategy towards a cloud based common
    digital Retail bank technology platform,” Mr Frazis said.
    Financially compelling transaction
    “Combined, the Group will have pro forma total assets over $88bn, with total deposits of more than
    $56bn. We believe the synergies and alignment will deliver sustainable, profitable growth,” Mr Frazis
    said.
    The acquisition price represents an implied acquisition multiple of 1.05x ME’s FY20 reported book
    value3
    and 11.9x ME Bank’s FY20 cash underlying earnings4
    .
    Pre-tax annualised synergy benefits of approximately $70 - $80m are expected by the end of year 3,
    with approximately 75% of synergies to be delivered on an annualised basis by the end of the second
    year post-completion. Pre-tax integration costs are estimated to be $130 - $140m, with the majority
    to be incurred in the first two years.
    The acquisition is expected to be low double-digit to mid-teens cash EPS accretive including full runrate synergies in the first year (FY22). The acquisition is also expected to be cash ROE accretive, by
    over 100bps including full run-rate synergies in the first year5
    .
    Completion of the acquisition is targeted before the end of BOQ’s 2021 financial year, subject to
    regulatory approval pursuant to the Financial Sector (Shareholdings) Act 1998 (Cth).

    3 Based on reported ME Bank book equity (excluding capital notes)
    4 Based on reported ME Bank underlying cash earnings, before COVID-19 overlays. Earnings adjusted for preference share dividends.
    5 FY2022 pro forma EPS accretion on an underlying cash EPS basis assuming the Acquisition is effective from 1 September 2021. Excludes
    transaction and integration costs and amortisation of acquired intangibles. ME Bank AT1 capital notes are treated as equity for accounting
    purposes. Associated dividend payments are not reflected in earnings and therefore not reflected in the EPS calculations. Calculated in
    accordance with AASB 133, with adjustments to reflect the bonus element of the Offer. Based on market consensus earnings for BOQ.
    Page 3
    Strategically aligned businesses
    The organisations are highly complementary and share a similar customer-centric culture as well as
    purpose and values that are focused on helping all our customers get ahead and create prosperity.
    Mr Frazis said, “The addition of ME Bank is expected to broadly double the size of the Retail Bank,
    increase Retail earnings contribution from approximately 36% to greater than 50%
    6
    and balance out
    our East Coast presence. The increase in customer numbers means BOQ Group can now provide a
    genuine banking alternative to approximately 1.45 million people.
    “BOQ’s digital transformation is well underway, and the acquisition of ME Bank is expected to
    accelerate the pathway to a scaled common cloud based digital Retail bank technology platform. We
    believe that the benefits of a single platform are significant, but are largely underpinned by the
    ability to leverage global capability with evergreen upgrades via cloud software.
    “BOQ, Virgin Money and ME are all customer-centric brands, evidenced by high NPS, a loyal
    customer base and aligned purpose and values, which we believe makes ME the ideal addition to
    BOQ Group’s stable of brands. We believe the BOQ Group is the perfect home for both ME’s
    customers and employees, and we look forward to welcoming them to the Group,” Mr Frazis said.
    The ME Bank base in Melbourne will remain and the ME brand will be maintained and grown.
    Delivering on our strategy
    The Group is in the second year of a multi-year, multi-brand digital transformation strategy after
    revitalising the business and announcing a refreshed strategy in February 2020.
    Mr Frazis said, “ME Bank joins the Group at a time when we have made good progress against our
    strategic priorities. We have an experienced leadership team in place which has delivered an
    important turnaround in the Retail Banking business, as well as above system growth in 1H21, while
    also improving the net interest margin. We have increased our Retail NPS to 4
    th and have made
    significant progress in remediating legacy issues.
    “Our digital transformation remains on track with Virgin Money’s Digital Bank soft launch completed
    in December 2020, and the go-live scheduled for next month,” Mr Frazis said.
    Trading Update
    BOQ is on track for a strong 1H21 operating and financial result, which would represent the third
    consecutive half of improved performance. BOQ currently expects to announce 1H21 statutory net
    profit growth of 60% - 65% and 1H21 cash net profit growth of 8% – 10%
    7
    .
    Highlights of the forecast 1H21 result are expected to include
    8
    :
    • Housing GLA growth of 5% annualised in 1H21 (1.2x system), with increasing momentum,
    and slightly negative to flat business banking GLA growth against a declining system
    • NIM is expected to be ~3bps up on 2H20

    6 Cash NPAT BOQ (August YE), ME Bank (June YE) and Pro Forma figures based on reported FY20 numbers. Excludes COVID-19 provisions of
    $133m for BOQ and $42m for ME Bank as disclosed in respective FY20 financial statements.
    7
    Excluding the impacts of the acquisition and the capital raising and subject to no material change in market conditions. Final result is
    subject to usual end of period processes and audit. Refer to the disclaimer and risk factors in the Investor Presentation in relation to
    forward looking statements.
    8 All comparisons are 1H21 vs 1H20 unless otherwise noted.
    Page 4
    • 1H21 expense growth of 4% compared to 1H20, 2% up compared to 2H20
    • Around 1% positive jaws for the half vs PCP driven by revenue growth and improved
    productivity
    • 1H21 loan impairment expense to GLAs of ~10bps
    • Loan deferrals due to COVID support have decreased to 0.6% for home loan balances and
    0.7% for business lending balances
    • CET1 expected to be above 10.0% at the end of 1H21, well above the target range of 9.0% –
    9.5%, excluding the impacts of the capital raising
    • 1H21 dividend expected to be 17cps9
    inclusive of new shares issued through capital raise
    As a result of the strong 1H21 performance, BOQ is updating its outlook for FY21.
    “We expect to deliver around 1% positive jaws in FY21, with the uplift driven by above system
    growth in lending, an improved margin outlook to slightly positive, offset by approximately 3% cost
    growth required to support the growth momentum of the business. We believe that BOQ maintains a
    relatively prudent collective provision that sees BOQ well placed to withstand anticipated lifetime
    losses arising from COVID-19,” Mr Frazis said.
    Details of the Equity Raising
    In order to fund the acquisition, BOQ is undertaking an underwritten 1 for 3.34 accelerated pro-rata
    non-renounceable entitlement offer (Entitlement Offer) to raise $1.0bn and an underwritten $350m
    institutional placement (Placement), together raising approximately $1.35bn (Equity Raising).
    The offer price for the Placement and the Entitlement Offer will be $7.35 per share (Offer Price),
    representing:
     a 9.3% discount to the theoretical ex-rights price (TERP) of $8.11; and
     a 12.6% discount to BOQ’s closing price of $8.41 on 18 February 2021.
    The Equity Raising will result in the issue of up to approximately 184 million new ordinary shares
    (New Shares), representing approximately 40.4% of BOQ’s existing securities on issue. The New
    Shares issued under the Equity Raising will rank equally with existing BOQ shares as at their date of
    issue.
    The BOQ Directors who are eligible shareholders have each confirmed their intention to participate
    in the Entitlement Offer by taking up their pro rata entitlement for New Shares.
    The Entitlement Offer is non-renounceable and rights are not transferrable and will not be traded on
    the ASX or other exchange.
    Eligible shareholders who do not take up their Entitlement under the Entitlement Offer in full or in
    part, will not receive any value in respect of those Entitlements not taken up.

    9
    The amount of any dividend paid will be at the discretion of the Board and will depend on several factors, including (a) the recognition of
    profits and availability of cash for distributions; (b) the anticipated future earnings of the Company; or (c) when the forecast timeframe for
    capital demands of the business allows for a prudent distribution to Shareholders.
    Page 5
    Placement
    All shares offered under the Placement will be issued at the same price as New Shares issued under
    the Entitlement Offer ($7.35 per share). New Shares issued under the Placement do not have rights
    to participate in the Entitlement Offer.
    Institutional Entitlement Offer
    Eligible institutional shareholders will be invited to participate in the Institutional Entitlement Offer.
    Under the Institutional Entitlement Offer, eligible institutional shareholders can choose to take up all,
    part or none of their Entitlement. Entitlements not taken up under the Institutional Entitlement Offer
    and those that would otherwise have been offered to ineligible institutional shareholders will be
    offered to certain eligible institutional investors and existing eligible institutional shareholders
    through an institutional bookbuild at the Offer Price.
    Retail Entitlement Offer
    Eligible retail shareholders in Australia or New Zealand on the Record Date of 7.00pm (Sydney time)
    (among other criteria), Wednesday, 24 February 2021, have the opportunity to invest in New Shares
    at the Offer Price, on the terms and conditions outlined in the Retail Offer Booklet to be dispatched
    to eligible retail shareholders on the day the Retail Entitlement Offer opens, being Monday 1 March
    2021.
    Please note that shareholders outside Australia or New Zealand (among other criteria) are ineligible
    to participate in the Retail Entitlement Offer. Further details as to eligibility will be set out in the
    Retail Offer Booklet.
    Under the Retail Entitlement Offer, eligible retail shareholders that take up their full Entitlement may
    also apply for additional New Shares in excess of their Entitlement.
    Details of Acquisition
    The acquisition by BOQ is for 100% of the issued share capital in Members Equity Bank Limited (ACN
    070 887 679) from 26 Australian industry superannuation funds (the “Sellers”) for a purchase
    consideration of $1.325bn payable at Completion, subject to completion account adjustments. BOQ
    has a right to terminate the share sale and purchase deed if the underwriting agreement is
    terminated by the Underwriters, resulting in BOQ not receiving sufficient funds to fund the
    acquisition.
    The Sellers indemnify BOQ (and ME Bank) in relation to certain legacy regulatory matters for a
    defined time period. A balanced suite of business and tax related warranties and indemnities
    otherwise apply which are subject to various limitations and qualifications and subject to certain
    exceptions. Please see slide 31 of the Investor Presentation for further details about the acquisition
    and slides 42 - 45 for the Key Risks associated with the Acquisition.
    Retail Investor Enquiries
    For further information in regard to the Entitlement Offer, please do not hesitate to contact the
    Registry from 8.30am to 5.00pm (Sydney time) Monday to Friday on 1800 779 639 (callers within
    Australia) or +61 1800 779 639 (callers outside Australia).

    courtesy of Bell Direct
    ===========================================================================================
    DYOR

    i hold BOQ

    i haven't looked in detail , but at first glance am not excited to buy more BOQ in the cap. raise

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