Local news was dominated by Tuesday's announcement that Westpac had signed an agreement with Rams Home Loans allowing Westpac to rip out the tastiest bits of the Rams carcass even before Rams had taken its final breath. Under the deal Rams management, franchisees and employees get to keep their jobs. Under the deal Rams shareholders are hung out to dry.
Assuming those shareholders ultimately approve, Westpac will take the Rams brand name and distribution network for $140 million, leaving the shell of the listed company holding its existing loans and liabilities. Westpac has merely suggested it would offer a helping hand on loan financing and the upcoming rollover of $1.4 billion of commercial paper. Rams will lose any prospect of future mortgage business.
Company founder John Kinghorn told the Australian Financial Review on Wednesday: "I wouldn't even suggest it's an excellent outcome for our shareholders, but it's the absolute best we can do in the circumstances."
Westpac CEO David Morgan suggested it was a win-win for both Rams and Westpac at a conference call, but no one could tell just what contorted facial expression he may have been wearing at the time. While $140m for 92 branches and a brand name is not absolute bargain basement, securities analysts agree it's a sensational move for Westpac, allowing an overnight 10 per cent increase of its struggling retail distribution. Westpac will now sell a wider range of loans under the RAMS label, if the deal comes off.
And judging by the RAMS share price, the deal will come off. Last week Rams put on 20 per cent as credit conditions began to ease and the company announced the tender of $250 million in bonds. In the last two days the share price has fallen 50 per cent. That's a $2.50 IPO to 48c in two months. While in theory there could yet be another bidder emerging for the whole company, Rams shareholders are clearly not taking that chance.
The demise of Rams has positive overtones for the pillars, as Deutsche Bank noted. Not only does it remove a once pesky heel-snapper, it ensures the likely death of the discount lender in Australia.
Elsewhere in the financial sector, Macquarie Bank acquired Canada's Orion Financial while Babcock & Brown successfully put away its aircraft acquisition and leasing IPO, proving those two pariahs have no trouble at all finding finance.
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