Analysis of Commonwealth Bank's Acquisition of Bank West

This report is a detailed analysis of the Commonwealth Bank's acquisition of Bank West, including the nature of the transaction and the funds involved. It also discusses the benefits of the deal and the financial data of both banks.

Running Head: MERGERS AND ACQUISITION 1
MERGERS AND AQUISITION

MERGERS AND ACQUISITION 2
Overview
This report is a detailed analysis of the Commonwealth Bank and acquisition of Bank
West, along with the nature as well as the type of the transaction and the funds that were
involved in the deal. The acquisition of the Bank West was done on the basis of the Sale and the
Purchase method with UK based HBOS PLC. There were two major targets of the
Commonwealth bank of Australia namely the bank of Western Australia and St. Andrews
Australia. Commonwealth Bank is one of the most renowned banks operating in Australia and
has a wide range of services to cater the needs of the customers (Johnston. 2008).
Targets
The type of the take over the Commonwealth entered into was the sale and the purchase
method. Bank west was the Australian based retail bank which was primarily located in the
Western Australia. Since the year 2003 bank was HBOS’s wholly owned subsidiary Australia,
which is again wholly owned by HBOS PLC. The bank was indulged in providing the services
such as corporate banking, insurance, investment services, also the principal activities of the
Bank West was personal banking as well as the corporate banking.
When the proposition was decided the CBA’S offer for the Bank West business was low
in context of thee price to book ratios in comparison to the other Australian banking acquisition
happened (Fraende. 2008).

MERGERS AND ACQUISITION 3
However the financial strength of the company allowed it to acquire the Bank West Company.
The financial position of the
Commonwealth bank as o
30th June 2008 and 2009 has been
reflected with the help of this picture. This indicates that the npat of Commonwealth bank of
Australia is 4723 for the year ending 2009 whereas the same was $4791 in the year 2008, when
there was news of deal with the Bank west of Australia (Commonwealth bank of Australia,
2008).
Commonwealth Bank Bank west
Market capitalization 133.31 125.89

MERGERS AND ACQUISITION 4
P/E Ratio 0.208 MERGED
Earning per share 363 254
Dividend 266 194
Share Prices 75.4 MERGED
Total earnings 4791 92.143
Financial data
The buy is restrictive and essential challenge, administrative and government
endorsements - and will be finished after receipt of those endorsements. The Group is resolved to
keep on conveying significant surplus capital because of the present unstable economic situations
(Public Competition Assessment, 2008). It plans to completely support the price tag by embraced
a A$2 billion quickened institutional arrangement which will keep up APRA Tier 1 capital at
7.6% and Tier 1 capital under UK FSA rules at 10.1%. The value of both the banks after the
merger would showcase the results determined in the table below (News.com, 2012).
Benefits of the takeover deal
The major benefit from the deal is that the branches of both the banks will be held open
due to the acquisition of and the customers of both the banks such as Commonwealth and Bank

MERGERS AND ACQUISITION 5
West will be allowed to use the ATM’s of each other without having to pay any additional fees
once the acquisition takes place in full length. Not only this has the Bank West Bank also
complemented the existing operations prevailing in the Australian market. This will deliver the
high opportunities in the key specific areas and will also enhance the durability of the products
and the services for the customers as it is quoted by the Ralph Norris, CEO of Commonwealth
Bank of Australia. The strong geographical and the business synergies led to an attractive
acquisition of the fastest growing business in the Western Australia (CBA, 2008).
Offer price and financing
The deal happened to be of $2.1 billion and the acquisition boosted by the pretax cost
synergies by 20-25% of the Bank west’s cost base. The deal was below 20% of the book value.
The offer price of the company was estimated between the A$38 to A$43 per share. The
company paid in the form of the shares as well as the balance amount in cash. The sources have
also reported that the CBA introduced the additional 2 billion new ordinary shares to help is
assisting the deal with the Bank West (Bankwest, 2007).
The major reason behind raising the funds was as they are still robust and strong and
holds a very commendable place in terms of Tier Ratio 1 and capital position (The Sunday
telegrapgh, 2012). The value of both the banks after the merger would showcase the results
determined in the table below. CBA lost cash on every one of the advances examined as
contextual investigations, and between the pinnacles of Bank west’s property loaning in mid-
2009 and the finish of 2012, it’s decreased this property introduction from $14.8 billion to
around $10 billion. They financed the deal through the sale of the equity shares and in my
opinion raising the capital would give the share to the shareholders of the Bank West, however

MERGERS AND ACQUISITION 6
the purchase is already low at 20% of the book value hence in my view the additional shares
shall not be allocated for the purpose of funding the deal (Johnston. 2008).

MERGERS AND ACQUISITION 7
References
Bankwest (2007). Annual Report 2007. Retrieved from
file:///C:/Users/System04087/Downloads/financial-report-2008.pdf
CBA, (2008). Commonwealth Bank of Australia to acquire Bank West and St Andrew's.
Retrieved from
https://www.commbank.com.au/about-us/news/media-releases/2008/081008-news-
bankwest-acquisition.html
Commonwealth bank of Australia, (2008). Annual Report 2008. Retrieved from
https://www.commbank.com.au/about-us/shareholders/pdfs/annual-reports/
2008_Annual_report.pdf
Fraende. B, (2008). UPDATE 2-Australia's CBA buys HBOS's BankWest for $1.5 bln. Retrieved
from https://www.reuters.com/article/bankwest-cba/update-2-australias-cba-buys-hboss-
bankwest-for-1-5-bln-idUSSYD5988120081007
Johnston. E, (2008). CBA buys BankWest for $2.1b. Retrieved from
https://www.smh.com.au/business/cba-buys-bankwest-for-21b-20081008-4w3v.html
News.com, (2012). BankWest takeover helped Aust economy: CBA. Retrieved from
https://www.news.com.au/national/breaking-news/bankwest-takeover-helped-aust-
economy-cba/news-story/74e60b946b660b6a19fc1a71d041ecaa

MERGERS AND ACQUISITION 8
Public Competition Assessment, (2008). Commonwealth Bank of Australia - proposed
acquisition of BankWest and St Andrew’s Australia. Retrieved from
https://www.accc.gov.au/system/files/public-registers/documents/D08%2B123529.pdf
The Sunday telegrapgh, (2012). Commonwealth Bank-owned Bankwest branded heartless.
Retrieved from
https://www.dailytelegraph.com.au/banks-dastardly-act/news-story/dd747dc7f3c382772e
2343b2d03d6126