Bendigo & Adelaide Bank Merger: Acquisition, Methods, and Evaluation

This case study provides an analysis of the merger between Bendigo Bank and Adelaide Bank in 2007, focusing on the rationale behind the acquisition, the methods used (specifically the 'Scheme of Arrangement'), and the post-merger financial implications. The study highlights the creation of a customer-focused financial entity, cost-effective solutions, and sustainable shareholder value. It examines the benefits for customers, shareholders, and staff, including increased product access, career opportunities, and financial advantages like a diversified business and improved loan management. Furthermore, it evaluates the acquisition methods, offer price, method of payment, FVINA allocation, and goodwill evaluation, providing a comprehensive overview of the merger's strategic and financial aspects. The assignment also represents the use of the given situation that are often seems to be the most essential for the given situation just before the companies get merged.

Executive summary
Banking system is often seems to be gaining much popularity in this modern era. Banking
sectors like to be seems to be the most essential for the given system. Its main and the core
elements are its customers. And the financial statement often seems to gain certain
achievements that are often seems to be much more important that are often seems to be the
most essential for the overall development. In the merging process, the government often
seems to be gain much more discourse that are often been seen while highlighting certain
merging activity. Here, the conditions and the situations are often been used to get through
the idea about the postconditions of the merged banks before the completion of the given
process. Before completion of the given situation, there is also a use of certain rules and
regulations that are often tend to use in the prescribed situation. In this context the assignment
also represent the use of the given situation that are often seems to be the most essential for
the given situation just before the companies get merged. It is believed that the readers also
get certain help regarding the gaining of certain new ideas about the postmodern situation of
the achievement of any company by overtaking it. Overtaking any company can only be
possible through certain legal issues.

Introduction
In general business, consolidation is a common way for the companies to expand in terms of
its size rather than able to gain only a temporary benefit pertaining to the internal activities.
At the time of the business consolidation, it has been seen that the acquirer reports the
consolidated results which combine the financial statements with those of the acquirer.
Bendigo Adelaide Bank formed the merger with Adelaide Bank in 2007. The merger process
was implemented by the "Scheme of Arrangement of Adelaide Bank". The various discourse
of the study aims to highlight the rationale for the merger activity (Bendigobank.com.au.
2018). In the given assignment, rules and the regulations within business organizations that
often seem to be the most essential for the overall development of the given system of the
organizations. It is also believed that with the use of the given system, there is a need of the
gained advantages while two companies get merged up or came under certain agreement. In
this assignment two types of industries is being used, specially two types of banks- Bendigo
Adelaide Bank and Adelaide Bank. Both the banks are from Australia based and get merged
up in the year 2007 (Avadhani, 2010).
The rationales behind the acquisition
The intention of business consolidation of both the banks is seen with the various activities to
create a unique partner focused and customer focused financial entity. The merger rationale
was also seen to be based on bringing the specialist skills among the various type the workers
and ensure delivery of a more cost-effective solution for the customers and business partners.
The consolidation process is further seen to be committed to creating a sustainable value for
the shareholders. Some of the main rationales for the bank post-merge process is recognized
to be depicted with the various types of the career opportunities with more large and

diversified operations. The head office functions will be split among the existing sites and the
main form of the consolidation will be depicted with the 4000 staff across every state and
territory in Australia. In addition to this, the partners in both the bank are depicted to be
getting the continued support of the partnership model. These partners will further see a
greater variety in form of the product access. This is further seen to be backed by processing
capability post consolidation of both the banks (Bendigobank.com.au. 2018).
Some of the other rationales are considered with the focus on increasing the value of the
shareholders in the company with an enhanced financial profile and the market capitalization
of $ 4 Billion. Some of the main forms of the financial advantages for the merger process has
been seen to be based on creating a diversified business and improving the loan management
system which was lacking in both the bank before the consolidation process. It is recognized
that the presence of the larger wealth management sector after the consolidation process will
be conducive in enlarging the overall business structure of the company and at the same time
the bank will be able to gain the increased market capitalization of $ 4 billion in the ASX 100
index. The banks will be further able to witness 80,000 retail shareholders. In addition to this,
the national expansion is also considered with covering the branch support in more than 380
branches covering all States and Territories (Bendigobank.com.au. 2018).
Some of the various types of the rationale for the merger process was recognized to be
evident with customers having greater access across more number of products they will be
able to gain access to more number of ATM through more than 380 company with a single
bank account. These factors are seen to directly conducive to improve the current account and
savings account worth. Moreover, the community account will be able to grow in terms of
the different type the aspects of the capacity for growth in “South Australian” branch network
(Bendigobank.com.au. 2018).

Henceforth, it has been seen that the result of the merger was complementary to both the
banks thereby creating major opportunities to such communities who were seeking for long-
term service with the banks. It is further discerned that the overall merger process was
introduced with the reason for foreshadowing of pre-tax profit increase of than 50%. In term
of the Adelaide Bank, pre-merger the bank suffered from limited access to the branches in
South Australia. Bendigo is known as the leader for having the access to a large number of
branch network in Australia and with the support of Bendigo bank, the banks will be able to
expand the business for themselves and the customers (Motley Fool Australia 2016).
The important depiction of the merger process is discerned with creating more value for the
customer and able to introduce a new form of the products. The various types of the other
significant advantages are considered with to create a sustainable value for the shareholders.
The various types of the career opportunities with more large and diversified operations. The
head office functions will be split among the existing sites and the main form of the
consolidation will be depicted with the allotment of 4000 staff across every state and territory
in Australia.
Acquisition methods
Nowadays many companies intend to have a better future which will combine with other
companies. The main way which can combine two companies together is called acquisition.
After the acquisition agreement deal, the bigger company will be called a parent, the smaller
company will be called as a subsidiary. There are two main methods in many acquisition
methods in nowadays Australian accounting market. They are an off-market takeover bid and
a scheme of arrangement.
First of all, the meaning of a scheme of arrangement is a procedure that allows a company to
reconstruct its capital, assets or liabilities with the approval of its shareholder and the court.
(Michael,2018) The target company will transfer all the shares to the bidder as a payback to

the target shareholders. The meaning of an off-market takeover bid is under an off-market
takeover bid, the bidder makes individual written offers directly to all target security holders
to acquire their securities in return for payment of the offer price. (Michael,2018). The target
security holders have right to choose to accept the offer or not. If they deal with each other,
the bidder will acquire their securities.
As for the events of Adelaide Bank and Bendigo Bank acquisition, Adelaide Bank arranged
the merge by a scheme of arrangement which will demand the agreement from the
shareholder of Adelaide Bank.(Bendigo bank,2007 ). The shareholders of Adelaide bank will
get 1.075 Bendigo Bank shares per Adelaide bank share. The reason why Adelaide bank
choose to use a scheme method in the merger is related to the advantages of the methods
compare with the take over bid method. In recent years, people are more willing to use the
schemes of arrangement method than takeover bid on acquire control. Because of the four
main benefits which are:
1.When two companies deal with the scheme, the ownership is clearly defined.
2.A more exactly schedule of detailed activities.
3.Shareholders are generally considered lower thresholds than the 90%of all securities which
are demanded to become compulsory acquisition.
4. It will be more flexible to incorporate terms into scheme which will be difficult to
permitted using a takeover bid.
Detailed evaluation
The offer price
Adelaide bank Bendigo Bank
Basis Ordinary share
price ($)
Ordinary share
price ($)
Implied offer
value ($)
Implied
premium(%)
Closing price(8 14.40 16.50 17.74 23

August 2007)
VWAP 2 weeks 14.58 16.14 17.35 19
VWAP 1 month 14.79 16.07 17.28 17
VWAP 3 months 15.08 16.11 17.32 15
VWAP 6 months 14.54 15.92 17.11 18
VWAP 12
months
13.82 15.10 16.23 17
It shows that from 8 August 2007 the ordinary price of Adelaide bank(14.40) is lower than
Bendigo bank’s(16.50$). Also the overall tend of Adelaide banking Bendigo bank ordinary
share price is decreasing. The lowest price of Adelaide bank is VWAP in 12 months 13.82, as
for Bendigo bank the lowest price is also VWAP in12 months 15.10. The implied offer value
after two banks acquisition will be 17.74$. Also, it will be decreed VWAP in 12 months. The
total implied premium will be about 20% higher compared with the ordinary shares(scheme
book,2007).
Method of payment
In the last three years, Bendigo bank using the policy of paying about 70% of cash it earning
in the financial year per share as the fully franked dividend to the ordinary shareholder of
Bendigo Bank. (Bendigo bank,2007)After being an acquisition. The merged group is still
willing to use a similar policy for the dividend payout. The policy of paying the dividend will
depend on a few of factors, such as the profitability of merged group's, the level of
availability of franking credits and the demand of capital and the financial position of the
merged group.
FVINA allocation

The fair value of Identifiable Net Assets in Adelaide and Bendigo bank's case will be
allocated after all assets liabilities and contingent liabilities got certain recognition criteria
will put separately in the consolidated financial statement of the merged group. When this
process is done, the rest cost from merger and the cost over Bendigo bank’s interest in the
FVINA will be regarded as goodwill. (Bendigo bank,2007)
Analysis of intangible assets
Balance sheet carrying
value
Full-year amortization/impairment
expense
Jun 2008($m) Jun 2008($m) Jun 2007($m)
Goodwill 1429.6 4.0
Trustee license 8.4
Software 21.8 6.3 4.2
Customer list(Oxford
funding)
0.7 0.8 1.2
1460.5 11.1 5.4
During 2007-2008, goodwill of $1429.6 million contains $1369.7million goodwill is from
Adelaide bank limited(preliminary final report,2008). Because of complexity and timing of
this merger group, the fair value of assets will just be used for a while which will double-
check in 12 months.
Goodwill Evaluation
The goodwill that is usually as a result of the acquisition of another company must be
recorded as an asset in the balance sheet each year so as to determine any impairment
suffered. If the acquired business cannot recover goodwill through its profitable operations,
then the goodwill is fully written off or written down partially. The process of impairment for
goodwill is however different from impairment of other assets because goodwill cannot
actually be feasibly recovered directly. Goodwill is amorphous and thus cannot exist Roberts,
C., (2011). This makes it more different from other intangible assets which can be identified

individually. Thus, goodwill can't exist according to the financial perspective of reporting. It
can be acquired from other identifiable intangible and tangible assets.
The amount of goodwill proposed was justified because the customers of Adelaide Bank Ltd
will still transact with the bank even after the acquisition took place. Some customers come to
the bank just because of the name or because they have accounts in the bank. Therefore most
of the customers will not even be aware of the acquisition taking place. Thus Bendigo Bank
starts by accepting the "goodwill" of the customers from the other bank.
For one to evaluate the impairment potentially created by goodwill, IAS 36 requires a
combination of goodwill with other assets and this combination creates a cash-generating
unit. With the support of warranted circumstances and facts, an evaluation can hence be
conducted on basis of aggregate. This is complete by computing and comparing the amount
recoverable of each cash-generating unit with the amount of the goodwill that is allocated to
that item. If the amount which is recoverable is less than the carrying amount, a write-down
of impairment must be prepared Wee, M., (2012). If there happens to be an impairment loss,
goodwill absorbs it first and after the goodwill has entirely been eliminated, the other tangible
and intangible assets are accordingly adjusted using their identifiable carrying values.
Roberts, C., (2011) suggested that goodwill that was acquired externally should not be
combined with the goodwill that was generated internally form operations that existed before
the acquisition process. It is however very important to explain further that the outsiders of
the company may find it very difficult to differentiate or clearly distinguish between the
goodwill acquired from outside and the goodwill generated internally. Therefore, those who
set the standards and govern them are concerned that through the process of practice,
companies can use the goodwill that was generated internally as a cushion to be used against
the impairment of goodwill that was acquired.

When the acquisition taking place is less than 100%, the parent firm only pays a portion of
the goodwill attributable to him. That is, the excess amount of fair value of net assets
identifiable is what is recorded as part belonging to the parent company. IFRS 3 states that
when the company obtains majority interest or shareholding from another company it must
record the cost of acquisition in a process of purchase price allocation to all assets and
liabilities identifiable valued at the fair price at the actual date of acquisition Ball, R., (2006).
The date of acquisition is specified as an actual date when the control of net assets, liabilities,
and operations of the entity that is acquired is effectively shifted to the acquirer. The only
area of my study is when the parent company also was known as the acquiring firm fully
obtains an agreed percentage of controlling interest in the company being acquired. It was
observed that Australia is a common law country and hence the mechanisms of strong
accounting standards and policies are enforced. Therefore the amount of goodwill suggested
by Adelaide Bank and Bendigo Bank was justified.
The market‘s reaction to towards the takeover
The merge between Adelaide and Bendigo banks has more advantages than disadvantages if
any. The motive was to create a business that delivered complementary goods and services
with a more cost-effective delivery to its customers and members. The following are benefits
that would be as a result of the merger.
1. The two banks have over 380 branches across Australia and hence, customers would be able
to have access to more services and products in the banking sector.
2. The partners of the two banks such as the wholesale distributors of various types of mortgages
would benefit greatly from the committed partnership model. The merger would increase the
market share and thus, partners will be able to access more variety of products and services
processed efficiently.

3. The shareholders will laugh all the way to the bank since their returns will be absolutely
much more. The financial profile of the merged business will be enhanced and the market
capitalization will be around $ 4 billion. The value of the merger will be significant as the
EPS of both companies will increase.
4. The staff of the two banks will enhance their careers because they will now work in a huge
and more diversified firm. More job opportunities will also be generated because the group
company requires over 4,000 employees from Australia.
During the announcement date, the merger promised to increase their financial strength,
funding flexibility and scale efficiency. The merged group will enhance the financial position
in the industry through effective and efficient processes of doing business.
The merged group will be able to manage over $43 billion worth of loans and will be able to
accommodate the increasing number of investors seeking to grow their wealth. The current
amount of funds which are under management is $7 billion. The market capitalization of the
merged group will be about $4 billion and hence it will be placed within the S&P/ASX 100
index. The accumulated number of retail shareholders will rise to 80,000 and more than 380
branches across the country and other countries. The company now has more than 25
additional branches opened.
The merged group is now prospecting or targeting more than 1.3 million clients which are
more than what the two companies served separately. The main agenda of the merger is to
best serve the interest of the shareholders as provided for in the regulatory approvals Casey,
R. S., (1989). Mergers are important because they produce more returns than an individual
company. When two companies merge together to form one company, they get more profit
than even the addition of their individual profits. When the news about the merger was
released, the public had mixed reactions. Most mergers that take place rarely become
successful and as a result, the public had a negative perspective towards the acquisition.

However, the shareholders were optimistic that the merger could happen successfully and as
a result, pushed it to realization. The strategies employed towards the implementation of the
merger was well thought of and the companies also considered corporate social responsibility
for the community. On the other hand, most of the customers of the two banks never took
interest in the merger information since they knew that their resources and wealth was intact.
When the merger took place, it made a profit within the first year and proved the speculators
wrong. Therefore, it was a nice decision for Bendigo Bank and Adelaide Bank to merge.
Accounting performance Evaluation
The accounting performance analysis will entail financial evaluation after acquisition took
place. This is simply an indication of how the two banks were affected by the acquisition and
take over as far as finance is concerned. This analysis will be done by doing a comparison of
the financial reports generated by the company to see what improvements have been made
and the challenges that have been encountered by the merged group. Financial reports can be
accessed from the official website of Bendigo and Adelaide Bank Limited.
The company became more financially stable and was able to fund more projects which
brought more returns to the company. The operations of this organization produced a cash
flow that is stronger than before the takeover occurred. In the long run, the strong cash flow
will help to enhance the liquidity status of the entire organization (Bao, 2017, p.196). The
status of liquidity for the merged group is better than that of the independent bank before the
acquisition occurred; up to date, it has been on the rise despite a few challenges that could
make it drop sometimes. This organization has managed to increase the gross and net returns
since the acquisition occurred attributed to by the increased number of products and services
sale. A significant rise in the number of sales can be noticed from the time of acquisition up
to date to the variety of products and services offered to the clients. The company has gained
new customers as well.

The annual reports on finance released by Bendigo and Adelaide bank show the banks
accounting performance has been improving after every year. The organization will be better
placed in the market since it will have approximately four billion market capitalization. The
number of stakeholders will increase to around eight thousand after the merger of the two
banks. the acquisition will expand the business territories of the newly formed company by
increasing the number of the branches in the nation and foreign countries as well. At the point
of merger of the two organizations the business was expected to be serving more than one
million customers however this number was expected to rise shortly after the company
announced the merger. More financial resources will be required to run the business due to
the increased number of business operations and expansion of the business by the opening of
more branches.
The improvements evident by using the most recent financial reports which are the 2017 and
2016 reports. The 2017 financial report shows that the total cash earnings of the bank were a
four percent increase from four hundred and one million previous years to four hundred and
eighteen million in the year 2017. Both the average ordinary and tangible equity were an
increase of eight and eleven percent respectively. This is definitely much higher than the
individual bank was making before they merged to form a single organization. The net
interest income has increased as well mainly as a result of an increase in the growth of assets
average interest returns. The wage bill of the merged group was higher than that of an
independent organization due to the increased number of employees. The merger led to the
opening of more branches and creation of more job opportunities which required more staff.
The employees of both organizations worked hard to ensure that the merger will work in
favor of the business and the goals will be realized. The total profit made by the organization
after the acquisition was higher than the one made before the acquisition. This increment is
explained by the fact that business gained more financial strength to invest in more business