Industry funds are set to part ways with ME Bank as negotiations for a sale of the business continued on Wednesday with the Bank of Queensland.
Sources told Banking Day that a deal had yet to be finalised but could be signed by the parties as early as today, with a public announcement by Friday.
The sale of ME is expected to fetch up to A$1.3 billion for the 26 super funds holding equity in the business.
A recent rally in BOQ’s share price could be critical for nailing a deal, with the prospective acquirer now better positioned to launch an equity raising to help fund a purchase.
BOQ is currently sitting on surplus regulatory capital but it would not be sufficient to fund the cash component of a buyout of ME’s shareholders.
While ME’s current owners would probably prefer an all-cash offer, a buyout from BOQ would likely be executed through a mix of cash and scrip.
Investment sentiment has turned in favour of BOQ and other listed regional banks in the last month following promising interim profit disclosures from industry participants.
With the BOQ share price now trading near a 15-month high and the market cap at almost $4 billion, it is now probably feasible for BOQ managing director George Frazis to tap the market for up to $600 million to fund the cash component of a buyout deal.
The prospect of an on-market equity raising has not stymied BOQ’s share price performance this week, with banking analysts recognising the strategic merits of buying ME.
Frazis stands to extract big capex savings on his core systems transformation program by acquiring ME’s technology.
BOQ plans to spend more than $400 million on migrating to a Temenos T-24 core banking system but the cost of that program could be reduced significantly because ME is already operating on the Temenos platform.
ME’s loan and deposit books would also help to dilute BOQ’s disproportionate exposure to the Queensland economy.
BOQ’s inability in the recent past to build market share in NSW and Victoria has resulted in its stock price often trading at a discount to the listed banking sector.
As the COVID-19 pandemic demonstrated last year, the Queensland economy’s dependence on a handful of industries such as tourism, hospitality and commodities means that creditworthiness of borrowers across the state is more variable.
BOQ’s share price touched an intra-day high of $8.75, before closing up 1 per cent to $8.65.