Suncorp and adviser Barrenjoey in for the long haul to conclude ‘Project Galileo’ with $4.9bn sale to ANZ

Suncorp is understood to have been working on a sale of its banking operations for 16 months, with discussions starting with ANZ about two months ago, say sources.

Earlier, other parties were part of the discussion, including the Bank of America-advised Bendigo and Adelaide Bank, which in recent times was said to have been rebuffed in its efforts to buy the business.

Investment bank Barrenjoey has been aiding Suncorp for its bank sale plans in what was known as ‘Project Galileo’, but ANZ is always believed to have been the group most keen to pay the highest price, with its interest in buying the bank stretching back years.

Apparently, Barrenjoey’s Matthew Grounds had seen overseeing a deal as an important win for the investment banking start-up after it had been on and off the agenda over the years while he was running UBS in Australia.

It comes as ANZ announced on Monday a $4.9bn acquisition of Suncorp’s bank and a $3.5bn equity raising through Macquarie Capital and UBS to fund the transaction – about eight months after DataRoom revealed that a spin off of Suncorp’s bank was being worked on by adviser Barrenjoey.

Plans to buy accounting software business MYOB are on ice, as sources suggest that both were on the agenda for ANZ, funded by a monster capital raising.

But after the market’s negative response to ANZ’s confirmation last week that it was in talks to buy MYOB for almost $4.5bn from KKR, an equity raising was always going to be much tougher.

This was something no doubt raised by underwriters Macquarie and UBS to ANZ about the equity raise in what is already a volatile trading environment.

Any acquisition of MYOB is likely to be off the table for at least six months or even a year, and it is understood that KKR needed more time – about six weeks – to get the company in order for a sale, despite the talks being advanced.

After buying the business for $2bn in 2019, KKR had been planning to float or sell MYOB in 2023 when it had turned around its performance to become strongly profitable, but sources suggested that ANZ approached KKR about an acquisition.

The $3.5bn raise to pay for the $4.9bn Suncorp bank acquisition has drawn a reasonable response from investors so far, say market sources.

The shares are being sold by way of an entitlement offer, where shareholders get one share for every 15 they own for $18.90 each.

The price is a 12.7 per cent discount to ANZ’s closing share price on Friday.

The next big challenge for ANZ is competition clearance.

The Australian Competition and Consumer Commission has always taken a tough stance on competition in the banking sector under chairman Rod Sims, but now the decision lies with Gina Cass-Gottlieb, who started in the job in March and previously offered competition advice to Suncorp while she was a partner at Gilbert + Tobin.

Of the top four banks, ANZ has the smallest market share and Suncorp has a market share of under 2.5 per cent in banking, so from one perspective the transaction looks like it would achieve a green light from the competition watchdog.

A merged Suncorp and ANZ will have market share of under 15 per cent in Queensland.

But a concern could be from the ACCC about market concentration, with NAB recently acquiring Citi’s retail banking operations and Bank of Queensland buying ME Bank.

ANZ was an under bidder for both.

When NAB tried to buy AXA, AMP ran a targeted campaign, so if Bendigo and Adelaide Bank remains a keen buyer of Suncorp bank, it may try a similar tactic.

The targeted completion for the deal is 12 months, which may suggest both parties anticipate getting a deal past the regulators could be challenging.

Market experts and analysts say that ANZ has paid a full price for Suncorp’s bank, at 13.8 times its net profit or 1.3 times book value.

Rivals Bank of Queensland and Bendigo and Adelaide Bank trade at about 9 times.

As part of the transaction, job cuts in Queensland or branch closures are off limits for three years.

It means full synergies will not be achieved from the acquisition for some time, although there could be some cost savings from integrating Suncorp’s systems on to ANZ’s.

Full synergies are expected to take six years to achieve, and then the deal is expected to cost ANZ 9.3 times Suncorp’s net profit.