BoQ raises funds for $1.33b ME Bank buyout

Bank of Queensland’s brokers are lining up investors for a $1.35 billion capital raising ahead of an ME Bank takeover expected to be announced on Monday.

Bank of Queensland CEO George Frazis at their head office in Newstead, Brisbane. Picture: Lyndon Mechielsen

Bank of Queensland is poised to announce the $1.325 billion acquisition of industry super fund-backed ME Bank as early as Monday, with a capital raising to fund the deal likely to close well-oversubscribed.

BoQ is expected to raise $1.35 billion from institutions and retail shareholders at a discount of about 11 per cent to the stock’s theoretical ex-rights price.

The bank, led by former Westpac executive George Frazis, was locking in investors on Sunday, luring them with projections of a double-digit increase in earnings per share and a 100 basis-point hike in return on equity.

BoQ has been advised by Luminis Partners, with Goldman Sachs and UBS acting as the bank’s brokers. Macquarie Capital is advising ME Bank.

The capital raising was expected to be priced on Sunday night, ahead of a formal announcement and a cleansing statement on the bank’s performance on Monday.

The statement is expected to highlight a continuing improvement in the performance of the retail banking business.

ME Bank will complement BoQ’s retail business, establishing a stronger presence in Victoria and filling out its proposition in NSW.

As a fully digital bank with no branches, ME Bank will dovetail with Mr Frazis’s ambition to overhaul BoQ’s digital capabilities.

It will also deliver some desperately needed scale, helping BoQ to compete with the majors on a more even playing field.

If the two businesses are integrated well, some observers believe that BoQ’s BBB-plus credit rating could also be upgraded this year, giving it access to cheaper wholesale funding.

The suitor went into a trading halt on Thursday afternoon after word leaked of an imminent transaction.

ME Bank is facing a buyout.

BoQ asked the Australian Securities Exchange for back-to-back trading halts for up to four days to execute an entitlement offer and a placement to institutions for a potential acquisition.

ME Bank is owned by 26 industry funds, including major shareholders Australian Super, Cbus, HostPlus and Hesta.

A spokesman for AustralianSuper, which is the largest shareholder with a 19.5 per cent stake, declined to comment.

However, the industry funds believe that BoQ is the best home for ME Bank across a range of criteria – price, job continuity for staff, and certainty that the deal will proceed.

The price represents a small premium to book value, which is revalued every six months for the shareholders.

Other suitors, including ANZ Bank and Bendigo and Adelaide Bank, were regarded as less attractive than BoQ.

ANZ, in particular, would have had to confront a searching review process by the Australian Competition and Consumer Commission, which has concerns about the market power of the major banks.

ACCC chairman Rod Sims said last week that reports of ANZ’s interest had raised concerns at the watchdog.

“If ANZ were to buy it, clearly we would have to do a full competition assessment,” Mr Sims said.

“It’s just competition common sense.”

Mr Sims said the ACCC had pre-assessed the BoQ/ME Bank deal last month and given it the thumbs-up.

“Our assessment is (the four major banks) only see themselves in the market, they don’t take much notice of the smaller players when thinking about pricing or other decisions,” he said.

“So even though you have banks as big as the Bank of Queensland, which is not a small business, they struggle to make inroads into the Big Four.

“If the smaller ones can get together, that’s helpful.”

Despite being set up in 1994, ME Bank has found it tough going in the banking sector.

It has never paid a dividend to its shareholders, prompting Liberal Party MP and chairman of the House economics committee Tim Wilson to remark last year that the bank appeared to be at odds with the best interests of superannuation fund members.