Australia and New Zealand Banking Group Ltd (ASX: ANZ) wants to buy the banking segment of Suncorp Group Ltd (ASX: SUN). But why?
The big four ASX bank is going to a lot of effort to acquire Suncorp, spending millions of dollars on transaction costs and capital raising.
Indeed, it's raising around $3.5 billion in new shares at a 12.7% discount to the latest closing ANZ share price of $21.64.
ANZ is buying the earnings and the loan book of Suncorp. The purchase price of $4.9 billion represents a price/earnings (p/e) ratio of 13.8 times before synergies or 9.3 times after the full run-rate synergies. It also represents 1.3 times the net tangible assets (NTA).
It's expected to be approximately neutral for earnings per share (EPS) on a pre-synergies, pro forma basis for FY23. Including the synergies, it's expected to add to EPS in the low single-digits. The expected annual cost synergies are around $260 million, pre-tax, which is around 35% of Suncorp banking's reported cost base in FY22.
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Why does ANZ want to buy Suncorp Bank?
A low single-digit rise of EPS may not sound that compelling. But, there are other factors that ANZ is considering.
Speaking at the Suncorp and ANZ Media Conference, ANZ CEO Shayne Elliott said:
We're acquiring a 1.2 million customer base, 700,000 of whom live here in Queensland, 400,000 of whom consider Suncorp Bank their main bank. That's a very, very valuable franchise. Customers are really at the heart of what we're acquiring, not bricks and mortar.
ANZ has committed to making no change to the total number of Suncorp bank branches in Queensland "for at least three years from completion". Time will tell what happens after those three years.
Increases exposure to Queensland
ANZ described Queensland as one of Australia's most important regions.
Buying Suncorp's banking operations is aimed at accelerating the growth of its retail and commercial businesses, while also "improving the geographic balance of its business in Australia".
Elliott explained the appeal of the Queensland economy:
Since March 2020, Queensland has recorded better economic growth, better workforce participation and more interstate migration than any other state or territory in Australia. It contributes 18% to Australia's GDP and we believe we can use the resources at our disposal to further contribute to its continued success.
Bigger loan book
ANZ also said that the acquisition would include $47 billion of home loans, $45 billion in deposits, and $11 billion of commercial loans.
ANZ share price snapshot
Shares of the big bank were in a trading halt today. Over the last month, the ANZ share price has risen 2.27%.
