Home Building Society recommends $592m BOQ merger proposal


Bank of Queensland (BOQ) today announced a proposal to acquire all the issued shares and options in Home Building Society Limited (Home) which values Home at $592 million1.


The Board of Home unanimously recommends that all Home shareholders support the proposal subject to an Independent Expert determining that the merger is in the best interests of Home shareholders and in the absence of a superior proposal.


Home Board members intend to vote in favour of the proposal in relation to their personal shareholdings in Home, in the absence of a superior proposal.


The Proposal


Under the terms of the proposal, to be implemented via a scheme of arrangement, Home shareholders will receive for each Home share they own:


  • 0.844 new BOQ shares; and
  • $2.80 cash.


The Offer represents a total consideration of $18.20 per Home share and a substantial premium of 29% based on Home’s and BOQ’s closing share prices of $14.11 and $18.25 respectively at Thursday, August 30 2007.


The Merger


Under the terms of the merger agreement, Home shareholders will own approximately 20% of the expanded group.


Following the merger, BOQ will also continue to grow the network strongly in WA, though with significantly enhanced resources and financial capability.


The merged entity will retain a regional head office in Perth and continue to trade under its existing brand for up to 18 months while consideration is given to determining the best trading brand for the long term.


Home Chairman Tony Howarth said the merger proposal represented an outstanding opportunity for Home’s customers, staff and shareholders, who have enjoyed Total Shareholder Return (TSR) of 42.4%2 since demutualisation and now have another outstanding growth opportunity.


“BOQ’s offer provides Home shareholders with the opportunity to be part of an Australian banking success story when it comes to growth, both in value and in the business itself,” Mr Howarth said. “We have a shared vision of being a genuine alternative to the big banks and by joining with BOQ we can be an even more competitive force in the West Australian banking sector.


“Importantly, BOQ offers the same customer focus, culture and drive as Home for shareholders, customers and staff and a partnership anchored in the two fastest-growing states in Australia. This is about bringing the very best in service, products and customer access to a growing branch and business banking network where we can create new jobs and new opportunities,” Mr Howarth said.


“Home’s Board is unanimous in its belief that this merger with BOQ offers the best opportunity for Home shareholders to maximise the value of their investment while also becoming part of a similar, regionally-based financial institution which has strong roots in community banking.”


BOQ Chairman Neil Roberts said the merger would make Home shareholders significant partners in BOQ’s future growth and allow them to benefit from the national footprint and unique business model of the bank.


“BOQ shareholders have benefited from Total Shareholder Returns in excess of 24% per year for the last five years, growth in market capitalisation from $400 million to approximately $2 billion and an expanding national network of branches and business banking which has successfully taken on the big banks over the last six years,” Mr Roberts said.


“BOQ shareholders benefit from a merger which will see a substantial increase in our presence in Western Australia, the fastest growing State in the country. Importantly, the merger is expected to be cash Earnings per Share accretive for BOQ on a normalised basis in FY2009.


“The structure of the proposal provides Home shareholders with access to potential tax advantages via Capital Gains Tax roll-over relief,” Mr Roberts said. “We are also delighted to invite a member of the Home Board to join the BOQ Board.”


Home Managing Director Greg Wall said the merger would provide a springboard for additional growth in WA.


“We are currently implementing an aggressive growth strategy that will see five new branches opened in the current financial year, with plans for an additional five within 2 years,” said Mr Wall.


“BOQ is very keen for Home to accelerate this plan. The combined financial strength of BOQ and Home will provide the Home business with greater financial strength and enhanced product offerings, and this gives us great confidence about taking our WA market share to a new level.”


BOQ Managing Director David Liddy, who was in Perth for the announcement, said the merger of BOQ and Home Building Society would create a regional banking powerhouse centred on the two strongest growing State economies in the country.


“The success of the merger going forward will be the marriage between BOQ’s unique franchise-based branch model and Home’s extensive Western Australian network of 29 branches,” Mr Liddy said.


“This will provide us with a strong platform to build the business here in Western Australia, opening more branches and business banking centres as we continue our rapid expansion in the State.”


BOQ’s Owner Managed Branch (OMB) franchise model allows local bankers to own and operate local branches, while retaining the security and strength of a bank.


“We already have four, soon to be six, OMBs in Western Australia and our first, Subiaco, is the fastest-growing branch in our national network,” Mr Liddy said.


“This gives customers the best of both worlds – the products, reach and range of a national bank network with the service and local knowledge of a small regional bank. It will mean access to a raft of new banking products for Home customers, including margin lending and a broad range of business banking products for SMEs, and equipment and debtor finance products.


“This is no big bank takeover, but a merger of two similar organisations to create an even more competitive force in the WA market and a real alternative to the major banks.”


The merged entity would continue to run both BOQ and Home-branded branches for up to 18 months during integration while ascertaining the best brand to use going forward.


Mr Liddy said there was very little overlap between the two existing branch networks and BOQ will also retain a significant regional headquarters in Perth following the merger.


“Bank of Queensland is about opening branches and building a business, not slashing and burning, so this merger will mean a strong future for regional banking in Western Australia,” he said. “Home’s expansion plans, coupled with our own, will see us become the real alternative bank for WA.


“Our successful mergers and acquisitions over the last five years demonstrate that we know how to undertake an integration of this type with sensitivity while maximising the strengths of the organisations and maintaining their strong involvement with the local communities.”


BOQ already has a growing business banking presence in WA, particularly in the booming areas of equipment and debtor finance and will expand this significantly following the merger. BOQ also has a strong relationship with the State’s largest health insurance provider, HBF, for which it provides banking products for its members.


Benefits to Home shareholders


  • A 29% premium to Home’s closing share price of $14.11 on 30 August 2007 based on BOQ’s closing price of $18.25;
  • 32% premium to Home’s 30 day VWAP of $13.14 and based on BOQ’s 30 day VWAP of $17.23;
  • Access to potential Capital Gains Tax roll-over relief available to Home shareholders in relation to the scrip component of the proposal consideration;
  • The opportunity to own approximately 20% of the merged BOQ-Home entity and participate in a successful company that will have a strong presence in Queensland and Western Australia, and benefit from future synergies resulting from the merger;
  • The ability to participate in BOQ shares which offer significantly increased liquidity relative to Home’s present share trading liquidity; and
  • Entitlement to Home’s FY2007 final dividend of 24 cents and access to BOQ’s FY2008 interim dividend following completion of the merger.


Benefits to BOQ shareholders


  • Significantly enhanced presence in Western Australia, one of the fastest growing economies in Australia;
  • Expected to be cash Earnings per Share accretive on a normalised basis in FY2009;
  • Larger scale and greater geographic diversification of earnings; and
  • Future cost synergy benefits anticipated from the merger through the conversion of Home branches to BOQ’s Owner Managed Branch model, consolidation of technology platforms and back office functions with further potential revenue synergies through cross-selling opportunities of BOQ’s existing products to Home’s customer base.


Merger Implementation Deed


BOQ and Home have entered into a Merger Implementation Deed under which they have agreed to proceed with the proposal by way of a scheme of arrangement between Home and its shareholders. The proposal is subject to support of Home shareholders, regulatory and court approvals, satisfactory completion of due diligence and other conditions customary for a public transaction of this nature.


The scheme of arrangement is expected to be implemented by January 2008. Further details of the Merger Implementation Deed are contained in the attachment to this announcement.




BOQ is Australia’s fastest growing regional bank with more than 240 branches, 13 business banking centres and 2300 BOQ-branded ATMs throughout every State and Territory in Australia. In the last five years, it has more than doubled its branch numbers, its assets under management have more than trebled to almost $20 billion while its market capitalisation has grown from approximately $400 million to $2 billion. BOQ has won Best Regional Bank in the AB&F Banking and Finance Awards twice in the last five years and is recognised as one of the highest customer service banks in the country.


Home Building Society


Home Building Society was formed as a mutual society in 1946 and was subsequently listed on the ASX in March 2002. In July 2006, Home and StateWest Financial Services Ltd completed a merger by way of a scheme of arrangement. Today, Home is one of the largest, listed financial services group in Western Australia with a $2.4 billion loan portfolio, $2.1 billion in total customer deposits, more than 126,000 customers and 29 branches throughout Western Australia.




BOQ is being advised by ABN AMRO as financial adviser and Clayton Utz as legal adviser. Home is being advised by Azure Capital as financial adviser and Blake Dawson Waldron as legal adviser.


1 Based on 32,527,376 Home shares on issue and BOQ’s closing share price of $18.25 as at 30 August 2007
2 TSR based on closing price of $2.80 on Day 1 of Home Trading