The Bank of Queensland Limited (ASX: BOQ) share price will be one to watch closely this week.
This morning the regional bank announced plans to raise funds to make a huge acquisition.
What did Bank of Queensland announce?
This morning Bank of Queensland announced that it has entered into an agreement to acquire 100% of Members Equity Bank (ME Bank) for a cash consideration of $1.325 billion. This acquisition will be funded by an underwritten capital raising of $1.35 billion.
According to the release, management believes the acquisition of ME Bank will be transformational and that the two businesses are strategically aligned.
It is expected to deliver material scale, broadly doubling the Retail bank and providing geographic diversification.
It also notes that it will combine two strong complementary trusted brands, with shared customer-centric cultures and differentiated customer segments.
Further, management sees a clear pathway to a scaled, common, cloud based digital Retail bank technology platform.
What about the financials?
Positively, Bank of Queensland believes the acquisition will be financially compelling.
It is expected to be low double-digit to mid-teens cash earnings per share accretive including full run-rate synergies in the first year (FY 2022). It is also expected to be cash return on equity accretive, by over 100 basis points including full run-rate first year synergies.
Synergies are expected to reach $70 million to $80 million pre-tax by year three.
The two businesses will have pro forma total assets over $88 billion, with total deposits of more than $56 billion.
Based on ME Bank’s latest results, the acquisition price represents an implied acquisition multiple of 1.05x reported book value and 11.9x cash earnings.
Bank of Queensland’s Chairman, Patrick Allaway, commented: “Today’s announcement is another major step in our strategy to be the leading customer-centric alternative to the big banks. With the addition of the ME Bank business, BOQ now has material scale and a compelling growth platform to support this ambition.”
“The combination of our highly complementary businesses brings together two organisations with a shared purpose and values generating greater value for customers, employees and shareholders. This is underpinned by the successful revitalisation of the bank since early 2020 with the team’s strong execution capabilities being reflected in our earnings progress to the half,” he added.
Bank of Queensland is raising the funds via a $1 billion underwritten 1 for 3.34 accelerated pro-rata non-renounceable entitlement offer and a $350 million underwritten institutional placement.
The offer price for both the placement and the entitlement offer will be $7.35 per share, representing a 12.6% discount to Bank of Queensland’s last close price of $8.41 on 18 February.
The Bank of Queensland share price will return from its trading halt once the placement is complete.