Value Creation Analysis: Bendigo & Adelaide Bank Takeover 2018

This report provides a detailed analysis of Bendigo Limited's acquisition of Adelaide Bank Limited. It explores the rationales behind the acquisition, including complementary business aspects, revenue synergies, and tax savings. The report examines personal incentives for the takeover, the chosen acquisition method (off-market bid), and the share market's reaction. Post-acquisition accounting performance is analyzed, focusing on market capitalization, ASX ranking, shareholder numbers, branch expansion, and net profit. The report concludes by evaluating whether the takeover enhanced value for shareholders, finding a positive impact. The document is available on Desklib, a platform offering study tools and resources for students.

EVALUATION OF TAKEOVER OF ADELAIDE BY
BENDIGO
September 4
201
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Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................3
RATIONALES BEHIND THE ACQUISITION......................................................................................................4
PERSONAL INCENTIVES FOR TAKEOVER......................................................................................................5
THE METHOD OF ACQUISITION AND REASONS FOR USE............................................................................6
REACTION OF SHAREMARKET BEFORE THE TAKEOVER...............................................................................6
ANALYSIS OF POST ACQUISITION ACCOUNTING PERFORMANCE................................................................6
TAKEOVER – VALUE ENHANCING TO SHAREHOLDERS.................................................................................6
CONCLUSION AND RECOMMENDATION.....................................................................................................6
REFERENCES................................................................................................................................................6
APPENDIX....................................................................................................................................................6
EXECUTIVE SUMMARY
As the title suggests, the analysis of the acquisition by the Bendigo Limited of the Adelaide Bank
Limited has been detailed. The main purpose of the report has been to provide the stakeholders
of the company and insight as to how the acquisition has been done and how far it has benefited
to them in terms of the value and the rewards. The report has come with the four major
conclusions. First conclusion has detailed as to why the acquisition of the Adelaide Bank has
been done. Second conclusion has detailed the evaluation of the acquisition with respect to the
method. Third conclusion has laid down the different reactions of the share market towards the
takeover and lastly the report has provided the analysis justifying the positive factor for value
enhancement towards the shareholders. In order to reach at the aforesaid conclusions, the report
has been framed and presented with appropriate headings and sub headings.
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INTRODUCTION
Finance sector is one of the major sectors across the industries operating in the different
countries. It is because without the financing no company can run its business in the easy and
smooth manner. Through this report, the acquisition of Adelaide Bank Limited by the Bendigo
Limited has been detailed. Both the companies are into the banking sector. The banking
companies are required to adhere to the norms as lay down by the Reserve bank and other
statutory authorities. The Bendigo Limited is the company which has been operating for the last
one hundred and sixty years and has been into the same sector of financing since its inception.
The company has been incorporated in the form of the Society – Bendigo Mutual Permanent
Land and Building Society in the year of 1858 with the aim of providing finance to the migrating
people to have their home and better living condition and since then the company has developed
its wings in the finance field and in the year of 1990’s, the new name has been given Bendigo
Bank Limited. Adelaide Bank Limited is also the banking company converted from the
cooperative building society. The former bank has merged with the later bank and new company
has been formed namely - Bendigo and Adelaide bank and in the current scenario, it is one of the
top largest bank in Australia.
The report will be divided into seven sections and will start with the description of the rationales
behind the acquisition. The second section will detail the personal motive of directors before the
acquisition and the third will detail as to what method the company has used for the acquisition.
The fourth section will lay down the analysis of the acquisition followed by the fifth section
detailing the reaction of the share market on the aforementioned takeover. The sixth section will
detail the analysis of the performance of the company after acquisition and last section will
provided the detail whether it has enhanced the value to the shareholders.
The report will then end up with the appropriate conclusion and references.
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RATIONALES BEHIND THE ACQUISITION
There are many rationales – economic, social as well as political which stands behind the
acquisition of Adelaide Bank by the Bendigo Bank but following are the economic rationales
which have led to the acquisition in a very easy and smooth manner:
Complementary Business
Though both the companies are in the same sector of financing, but they have the mode of their
operations and lines of businesses they operate are different but on the other hand they are so
closely related to each other that no business can work on their own they have to be used
together in order to run their businesses. Adelaide Bank Limited is the company which has the
expertise in the banking in terms of the wholesale business and provides the funds accordingly to
the needed banks and the non banking finance companies. It means to say that the Adelaide Bank
Limited is the finance provider company in the whole sale terms and have the partnerships with
the wide range of the companies involved in the distribution systems commonly known as the
distribution partners.
On the other hand the Acquirer Company – Bendigo Bank Limited is purely into the sector of the
retail banking and seeks funds from the whole sale banking companies and work under the
refinance scheme. It seeks funds not only from the wholesale companies but also from the banks.
Therefore, in this manner these two companies have the business complimentary to each other
and hence the acquisition has led them to become one of the banks in having the distribution
centers along with the retail centers.
Significant Revenue Synergies
As the business of the companies is complimentary to each other there are more bright chances
to have the synergies in the future. These synergies are in the two forms – one is of the increase
in the revenue figures for the next reporting period and the second is of the enlarged customer
base. Both of the synergies will help in the better development of the business of the company
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and in fact it has been observed from the post acquisition analysis. This is one of the major
rationales behind the acquisition.
Saving in Tax and Cost
The companies have the tendency to save the amount of the tax through the mergers and
acquisitions and this benefit has led them to opt for the acquisition.
Apart from the tax savings, there are also the high chances of having the decrease in the
compliance and statutory cost that each of the company has to bear to make the necessary
compliances of the rules and regulations of applicable laws. For instance, there will be the
consolidation of the costs relating to the corporate and secretarial matters like costs of listing of
shares of the company and other regulatory services.
PERSONAL INCENTIVES FOR TAKEOVER
The Board of directors of the acquirer company as well as the target company has their personal
interest in the takeover. One of the basic incentives behind the acquisition is that the directors of
the proposed will have the high remuneration in the post acquisition company. It is because their
variable part of the remuneration of the directors is linked to the turnover achieved by the
company. If the turnover is increased then the directors’ remuneration will also be increased. As
the post Acquisition Company will be having the high turnover which will generally lead to the
higher remuneration of the directors of the company.
Other personal incentive is that in case the company’s management decides to change the
variable part of the remuneration from being linked with the sales targets to the customer focus
then the board of directors will again be in the benefit. It is because after the acquisition of the
company, the new company will have the enlarged customer base and higher turnover and hence
the in the acquisition of the company there is the high range of personal incentives.
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THE METHOD OF ACQUISITION AND REASONS FOR USE
For the purpose of the acquisition, the company has used the method of the off the market bid.
The company has made the announcement in the May 2017 that the company – Bendigo Bank
Limited will acquire the Adelaide Bank Limited at certain price which has been announced in the
market but it has not been opened for all and hence it is the off market bid. This method of
acquisition has been used on the premise that the on market bid might have valuated the target
company much higher than the off market bid and will also allow the other companies to
participate in the bidding process. The merger has been done through the series of process and
has been made with the consent of both the companies. The second major reason for choosing
the method of acquisition is that both the companies have the complementary business and such
acquisition is in the interest of the shareholders of both the companies.
EVALUATION OF ACQUISITION ANALYSIS
In the new entity namely – Bendigo and Adelaide Bank Limited, the shareholders of the
Adelaide Bank Limited will have the 1.075 shares of Bendigo Limited for each share of the
Adelaide Bank Limited. In the newly formed company, the Bendigo Bank Limited will hold the
55% of the shares and the Adelaide Bank Limited will hold the 45% of the shares of the joint
entity. The mode of payment has been through the form of the shares as well as through the cash
and goodwill so generated during the synergies has been capitalized as the Intangible assets.
Goodwill has been at the start has been measured at cost and in the subsequent years has been
valued at cost less the amount of the impairment loss if any. The goodwill is difference of the
amount between the consideration paid through shares and the net assets value of the company as
on the date of the acquisition.
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Bendigo Bank Limited
Adelaide Bank Limited
Bendigo and Adelaide Bank Limited
ACQUISITION ANALYSIS
0% 20% 40% 60% 80% 100%
Series1
Series2
REACTION OF SHAREMARKET BEFORE THE TAKEOVER
The share market is the place where all the changes in the market if happens are reported first
and the correct analysis by the share market will make the company flourish in the near future
years and the wrong analysis will make the company deteriorate in the upcoming years. Thus,
the share market reaction is the first to note after any incident takes place. Before the
announcement date of 9th of August 2017, the share market has been in the position of shock with
increased waves as the company has announced the takeover very instantly and it has been
regarded as the remarkable event in the banking industry. At the first instance, it is about to
believe that such acquisition will decrease the effect of the financial and the economic crisis that
have started in the year two thousand and six but the proposition has become wrong but still the
faith and belief of the share market has been found very close to the results as the post
acquisition analysis of the acquisition has been found positive and have such an effect that the
company has become one of the largest banking company across the Australia.
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Positive
More Positive
Pre Acquisition Post Acquisition
Share Market Reaction
8.5 9 9.5 10
Series1
ANALYSIS OF POST ACQUISITION ACCOUNTING PERFORMANCE
The business combination arrangement impact can be best judged by the performances of the
grouped companies in future years which can be assessed with its financial and non-financial
performances. The takeover has certain huge impact on the performances of the company. The
market capitalization of individual banks were below 2.5 before takeover which has been
increased to 3.8 of combined group after the synergies happened showing high customer base
and quality in services. The positions of Bendigo Bank and Adelaide bank in ASX was above 75
in rank which has been drastically improved and Merged group Ranking has been improved
resulting in position of the group in ASX in top 70 companies. The shareholders of individual
groups were seen separately show less in numbers and when combined shows 82000 in numbers.
The branches of the combined group have been increased to 382 after takeover which was very
huge in case Adelaide Bank as the bank was having only 25 branches individually. The Net
Profit after tax has been increased by 100% approximately as compared to individual companies
after the synergies has happened. The overall, impact on EPS of combined group has been
decreased due to high profits and high tax burden but the takeover improved the credit ratings of
individual banks from BBB+. The more important and the business running factor of the
acquisition is that the company have been able to increase its customer base to the tune of
thirteen million customer which is the good figure and ensures the company will definitely run in
the future and will be less impacted by the economic crisis.
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Pre Acquisition
Post Acquisition
Customers
0 500000 1000000 1500000
Series2
Series1
TAKEOVER – VALUE ENHANCING TO SHAREHOLDERS
The business combination arrangement of takeover by Bedigo Bank Limited was the stepping
stone step in the banking field of Australian Industry. The shareholders of the Banks were
benefited by the takeover as it enhanced their cash earnings per share by 13% as compared to the
earning before arrangement. The Bendigo Bank and Adelaide Bank takeover creates synergies in
banking sector in positive manner resulted in increasing the dividends payout to shareholders.
Thus, from the above report , it can be said that not only financial wealth and profit
maximization is achieved for shareholders of the company but true wealth has been maximized
which helped in increased market capitalization for the shareholders in true and fair manner.
Also from the prospects of the shareholders, the company after acquisition will have the
increased customer base and hence will generate more profits and increase the reputation in the
future.
CONCLUSION AND RECOMMENDATION
The report has explained the acquisition of Adelaide Bank Limited by the Bendigo bank Limited.
The rationales have been found positive and detail the real basis as to why the proposed
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acquisition has been announced. Along with the rationales the motives of the board of directors
of both of the companies are found to be genuine and relevant. The method has been found more
relevant to the acquisition because if it has been done off the market bid then the stakeholders
will would have the sense of dissent among them. The reaction of the share market has also been
highlighted and which has increased the worth of the detailed analysis made in the report and the
response of the share market has been found as positive and has been described as remarkable
event in the share market industry. The performance of the company after the acquisition has
been found more satisfactory than before as the customer base have enlarged. But as per the
common practice the benefits of the same will be realized after three to four years of working. At
the end it has been concluded that the acquisition of the Adelaide Bank Limited by the Bendigo
Limited has provided the increased value to the shareholders. To conclude the report, it has been
found exhaustive, detailed and useful.
REFERENCES
Company Official Website, (2016), “Annual Report 2016”, available on
http://www.bendigoadelaide.com.au accessed on 04/09/2018.
Intelligent Investor, (2017), “Bendigo and Adelaide Bank (BEN)”, available on
https://www.intelligentinvestor.com.au/company/Bendigo-and-Adelaide-Bank-Limited-BEN-
249121 accessed on 04/09/2018.
Jensen, M.C., (2018), Takeovers: Their causes and consequences. journal of Economic
Perspectives, 2(1), pp.21-48.
Le, H.T. and Schultz, E., (2017), Toeholds and the bidder shareholder wealth effects of takeover
announcements, Australian Journal of Management, 32(2), pp.315-344
Setia‐Atmaja, L.Y., (2012), Governance mechanisms and firm value: The impact of ownership
concentration and dividends. Corporate Governance: An International Review, 17(6), pp.694-
709.
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