Bank of Queensland Limited (ASX: BOQ) shares have entered into a trading halt to announce a capital raising and the potential acquisition of ME Bank.
Is BOQ acquiring ME Bank?
That’s what the word on the street is, or the AFR’s Street Talk, to be precise.
ME Bank is currently owned by a large group of Australian industry funds including AustralianSuper, Catholic Super, CBUS, HESTA and Hostplus. But the super funds now seemingly want out.
Bank of Queensland has apparently made a $1.3 billion bid for ME Bank and it has been in exclusive talks. If BOQ is successful then it will get a loan book of around $25 billion, along with the rest of the ME Bank business.
The AFR reported that ME Bank prefers the BOQ bid and the takeover will not need ACCC approval because it isn’t one of the big banks doing the buying.
How is Bank of Queensland going to afford this?
It’s not as though BOQ has $1.3 billion of spare cash laying around. The current BOQ market cap is around $4 billion, so it’s a transformational deal if it goes through.
BOQ has put its shares into a trading halt to consider, plan and execute a proposed capital raising from both institutional investors and regular shareholders.
This seems like a pretty good time for BOQ to be raising capital considering the BOQ share price is now 11% higher than where it was a year ago. The increased scale would give a number of operational advantages to BOQ, and I’m sure there will be millions of dollars of cost synergies that it’s able to find as well.
Is this a good move by BOQ?
It sounds like a smart acquisition to me. ME Bank has a good reputation compared to most other banks. However, I’m not sure if it will be enough to allow BOQ challenge the big four banks of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).
The banking sector may face difficulties growing profit meaningfully beyond FY21 with how low interest rates are.
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