Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

UBS Investment Banking Challenge - Finals

14,358 views

Published on

These are the slides that my team presented to UBS at the Finals. We changed our slides style according to an investment banker’s feedback. In this round, on top of using the DCF and multiples (comparable company and precedent transaction), we are required to determine the offer price using past trading range and analyst price targets. And this time, we are representing Saint George bank. (Sell-side)

  • Be the first to comment

UBS Investment Banking Challenge - Finals

  1. 1. An Analysis of theWestpac Offer to St. George<br />The Dream Team<br />
  2. 2. Agenda<br />2<br />
  3. 3. Our Team<br />
  4. 4. Brief Background of the Westpac Offer<br />Consideration<br />Proposal to exchange 1.25 WBC ordinary shares for each SGB ordinary share<br />All-scrip merger<br />A Scheme of Arrangement (“Scheme”) is to be effected subject to SGB shareholders’ vote<br />Senior management team to be drawn from both banks<br />SGB Chairman appointed as Deputy Chairman with two other SGB Directors to join the WBC Board<br />Operating model for the merged entity is to retain all WBC and SGB brands and branches/ATM networks<br />A two-week “Exclusivity Period” to conduct reciprocal due diligence and negotiate a Merger Implementation Agreement<br />Break fee of $100m is proposed<br />Conditions precedent<br />An Independent Expert’s Report concluding the Scheme<br />SGB shareholders’ vote<br />Court approval and other regulatory rulings and consents <br />
  5. 5. St. George: Current Position in Market Capitalisation<br />Currently<br />5th Largest<br />5<br />
  6. 6. Advantages and Disadvantages of Westpac Offer<br />Advantages<br />Be part of the largest market capitalisation in Australian banking history<br /><ul><li>Benefit from cheaper cost of funding using WBC’s AA credit rating</li></ul>Cross-selling opportunities in the largest retail and wealth management network in Australia<br />Cooperate with Westpac to tackle intense competition in the regional banking sector<br /> Access to WBC’s resources and expertise<br /> Accretive EPS for SGB<br />SGB shareholders obtain CGT rollover relief on the all-scrip merger<br /><ul><li>Guaranteed SGB representation in senior management</li></ul>Disadvantages<br /><ul><li>Potential customer attrition
  7. 7. Integration risks involved
  8. 8. Staff resistance due to job security issues</li></ul>6<br />
  9. 9. Westpac Offer: Risks Considerations<br />Customer Attrition<br />Issue:<br />Existing customers leave SGB resulting in shrinking market share and damaging its reputation<br />Recommendations:<br />Customer relations management <br />Media publicity management<br />Retain SGB branches and ATM networks to maintain presence<br />Integration Risks <br />Issues:<br />Concerns over disruptions to operations during the integration process<br />Culture integration issues – SGB “Big enough but small enough” to be customer-focused<br />Recommendations:<br />Appoint transformation advocates from both SGB and WBC<br />Utilise WBC’s market -leading risk management systems<br />7<br />
  10. 10. Proposed Merged Operations<br />Merged Westpac and St. George Business Model<br /> Product & Operations<br />Technology<br />Core/Support<br />Opportunities for Growth after merging with WBC<br />Cross-selling to within the wider distribution channel in retail banking segment<br />Extension of wealth management segment<br />More prominent presence in NSW and other states<br />8<br />
  11. 11. How likely is the proposed model to be successful?<br />Key Features of the Proposed Operating Model<br />Minimises the risk of the large-scale disruption<br />Minimises customer and value leakage<br />Offering a broad range of products <br />Multi-Brand<br />Strategy<br /><ul><li>Higher possibility of success in the integration process
  12. 12. Better consolidation of products and operations
  13. 13. Easier alignment of business structures</li></ul>Common Strategic Framework<br /><ul><li>Catering to a broad range of customers
  14. 14. Westpac : “A professional, aspirational bank with a social conscience”
  15. 15. St. George: “A bank with humanity”</li></ul>Distinct Brand Personalities<br />9<br />
  16. 16. Factors Determining Whether the Merger is Successful <br />Key Factors<br />Successful When<br />Customers<br />Customer Attrition Rate<br /> Market Share<br />Customer Satisfaction Index<br />Low<br />Increase<br />Maintain or Increase<br />Synergies<br />Realised Cost Synergies<br />Realised Revenue Benefits<br />Realised Funding Benefits<br />Actual Integration Costs<br />Cost to Income Ratio<br />As Expected or Higher<br />As Expected or Higher<br />As Expected or Higher<br />As Expected or Lower<br />Decrease<br />Employees<br /><ul><li>Employee Turnover Rate
  17. 17. Employee Satisfaction Index</li></ul>Maintain or Decrease<br />Maintain or Increase<br />Shareholders<br /><ul><li>Earnings Per Share
  18. 18. Share Price Performance</li></ul>Increase<br />Better<br />10<br />
  19. 19. Valuation<br />11<br />
  20. 20. Valuation Summary<br />12<br />WBC Offer:<br />32.46<br />Current SGB:<br />26.65<br />
  21. 21. Synergies<br />Total Benefits: $222 million<br />Assumptions:<br />Cost Synergies - 25% of operating expenses (Empirical evidence of 20-30%)<br />Restructuring Costs - 161.5% of cost synergies (Average of precedent transactions)<br />Funding Benefits - 48% of Deposits and other borrowings at 60 bp (May 2008)<br />Revenue Synergies - 25% of SGB revenue $2.3 billion realised over 10 years.<br />Who Benefits?<br />Both St. George and Westpac<br />13<br />
  22. 22. Implied Value<br />14<br />Implied Value is NEGATIVE<br />considering Synergies<br />
  23. 23. EPS vs. Exchange Ratio Analysis<br />Westpac Offer<br />15<br />SGB Current EPS<br />
  24. 24. Next Steps for St. George<br />16<br />
  25. 25. Alternatives and Impact<br />17<br />
  26. 26. Alternatives and Impact<br />Renegotiate<br /> SGB renegotiates terms to benefit SGB stakeholders:<br />Higher offer price<br />Retention of key SGB senior management team<br />SGB final dividend to be declared to SGB shareholders<br />No break fee of $100m at the moment<br />Confidentiality Agreement<br />WBC’s Potential Reaction:<br />Proceed to renegotiate additional terms taking into consideration of WBC’s maximum offer price<br />Accept<br />Agree on Merger Implementation Agreement<br />WBC Offer is communicated to SGB shareholders and prepare for shareholders’ vote<br />In the mean time, regulatory and government approval processes are underway<br />If SGB shareholders vote in favour of the merger proposition, a Court Approval needs to be obtained<br />Subsequent to the Court Approval, merger becomes official<br />18<br />
  27. 27. Alternatives and Impact<br />Reject<br />SGB continues to grow organically, however, explore alternative funding sources<br />WBC’s Potential Reactions:<br />Offer a higher premium to sweeten the merger deal<br />Abandon the merger proposition entirely<br />Hostile takeover <br />SGB’s Defensive Action:<br />Super-majority shareholder voting<br />Delay<br />SGB appoints experts to perform in-depth reviews of the merger proposition<br />WBC’s Potential Reactions:<br />Further negotiations to convince SGB Board<br />If delay too long, WBC may change the WBC Offer or abandon the merger proposition entirely<br />SGB’s Defensive Action:<br />Negotiate for “SGB Review Period” clause including a Confidentiality Agreement<br />19<br />
  28. 28. Other Matters<br />Exclusivity Period<br /> Include an exclusivity period of two weeks to conduct reciprocal due diligence and negotiate a Merger Implementation Agreement<br />Break Fee<br /> Exclude the break fee of $100million as proposed by WBC to allow SGB to have more optimal alternatives for consideration<br />20<br />
  29. 29. Key Messages to St. George Shareholder’s<br />WBC Offer<br /> Renegotiate the WBC Offer and additional terms with WBC<br /> All scrip-merger<br /> Scheme of Arrangement<br />Merits of the merger proposition <br /> Benefit from cheaper cost of funding using WBC’s AA credit rating<br /> Cross-selling opportunities in the largest retail and wealth management network in Australia<br />Outcome of the merger proposition<br /> Accretive EPS<br /> Retain SGB brand and branch/ATM networks<br /> Be part of the largest market capitalisation in Australian banking history<br />21<br />
  30. 30. Other Considerations<br />22<br />
  31. 31. Other Considerations<br />Potential Bidders<br />for SGB<br />Other Big Four Banks – CBA, NAB and ANZ – may counter-bid the offer to acquire SGB. This will increase the premium that WBC has to offer in order to clinch the deal.<br />CBA <br />Huge cash surplus and high share prices<br />However, facing domestic competition issues<br />NAB<br />Previously a major shareholder in SGB <br />Could make an offer for SGB if it opts to forego overseas expansion<br />However, massive capital investment has been injected overseas<br />ANZ<br />Previously a major shareholder in SGB <br />However, ANZ changed its strategic focus and moved on to expanding in the Asian region<br />23<br />
  32. 32. Other Considerations<br />Government Approval on the Proposed Merger<br />Issues:<br />Possibility of monopoly subsequent to the merger<br />ACCC may view each Australian state as a separate banking market – NSW is the main issue <br />WBC and SGB, combined, will be the largest amongst all the Big Four Banks in Australia<br />The merger would lessen competition in the wealth management sector – possibility of reduced product diversity for consumers<br />The state of Australian banking industry <br />“Four Pillars” policy maintained <br />Impacts on national interests<br />Recommendations:<br />Merger plan, demonstrating the impacts of the merger on various aspects, need government approval<br />Bring in government lobbyists <br />24<br />
  33. 33. Final Recommendation<br />Renegotiate with WBC<br /> Offer price<br /> Retention of key SGB senior management team<br /> SGB final dividend to be declared to SGB shareholders<br /> No break fee of $100m at the moment<br /> Confidentiality Agreement<br />25<br />
  34. 34. Thank you<br />26<br />
  35. 35. GDP Forecast<br />27<br />European Exchange Rate Crisis.<br />Asian Financial Crisis.<br />Global Financial Crisis.<br />Assumption: Lowest GDP could happen is -200% of 2007.<br />Assumption:<br />It follows 1995 and 1996 when the economy falls from the maximum.<br />Assumption: The movement from one year to another year is on a gradual basis to the maximum (120% of 2007) as the economy recovers.<br />
  36. 36. Relative Valuation Approach<br />

×