The Westpac Banking Corp (ASX: WBC) share price has been trading largely sideways since confirming takeover talks with payments processor Tyro Payments Ltd (ASX: TYR) last week.
Although these are "preliminary discussions" and there is "no certainty that any transaction will result," that hasn't stopped brokers running the rule over the potential deal.
One of those brokers is Citi, which has given its verdict on the potential takeover.
What is Citi saying about Westpac's pursuit of Tyro?
According to the note, the broker sees positives from the potential transaction and expects it to strengthen Westpac's small business offering and boost its card-present segment share.
However, it has warned that the two parties reaching a deal may be harder than you think. The broker explained:
WBC has confirmed today that it is preliminary discussions to acquire Tyro. The potential transaction would strengthen WBC's small business proposition, and move it ahead of CBA in card-present segment share. Consequently, WBC's existing scale in merchant acquiring would allow for likely synergies, but we think such a transaction would still prove difficult to execute.
TYR's major shareholder is linked to another interested consortium, while its [Tyro's] exclusive arrangement with current and referred BEN customers presents another unknown.
Positively, Citi also highlights that a deal wouldn't have much of an impact on Westpac's capital position. It concludes:
With TYR capped at ~$800m, a control premium could see CET1 consumption of ~20bps for WBC. WBC printed the lowest CET1 of peers at 10.75% in 3Q22, and while it is set to receive 25bps from asset sales, these could be absorbed by any potential transaction. Overall, while it would be an interesting transaction, execution looks difficult, and in any event it would be minor in the scheme of the WBC story.
Is the Westpac share price good value?
Citi is bullish on the Westpac share price at the current level.
The note reveals that its analysts have a buy rating and $30.00 price target on its shares. This implies potential upside of 26% for investors over the next 12 months.
It is also expecting a $1.60 per share fully franked dividend in FY 2023, which equates to a sizeable 6.7% dividend yield.
