St George P/E ripe for the picking

St George historically traded on an inflated price earnings ratio, relative to other banks, due to its perennial status as a takeover target, but this was eroded in the months prior to Westpac's merger proposal.

Based on last Friday's closing share price pushing $27, the St George price earnings ratio had shrunk to 11.7, compared to Westpac's 13.3.
St George had traded as high as $38 towards the end of 2007, but then almost halved in the next four months to $21, suffering a bigger share price correction than the big four.

The 26 per cent increase in share price to $33.45 yesterday increases the price earnings ratio to approximately 14.6, so are shareholders really getting a takeover premium?

Shareholders who purchased St George stock between March and December 2007 (and who invested in new shares sold in the last quarter of the year) definitely would not, as the price generally traded above the price implied by Westpac's offer.

Using Friday's share prices for comparison, Commonwealth Bank's price earnings ratio is 12.2 times, ANZ 11.6 times and National 11.5 times.
Compared to another potential takeover target, Bank of Queensland, which trades on a price earnings ratio higher than that of St George after the offer at 15.6 times, it's not surprising some shareholders are not convinced they are receiving value for their stake.

St George remains free to consider other offers, as long as it doesn't seek them. The initial merger agreement, published yesterday, includes standard no-shop and no-talk terms, but does not preclude the bank from reviewing alternative proposals. Nor is there any break fee.