Are storm clouds gathering over ANZ's Suncorp bid?

The takeover of Suncorp may not be as simple as planned.

Key points
  • ANZ wants to acquire the banking division of Suncorp for $4.9 billion
  • Queensland’s government is asking a number of questions about the deal to ensure the state's economy doesn’t suffer
  • While Suncorp branches may not be closed, there is speculation that ANZ may close its own branches sooner than expected

Australia and New Zealand Banking Group Ltd (ASX: ANZ) wants to acquire the banking division of Suncorp Group Ltd (ASX: SUN).

The leadership of Suncorp may have already agreed to the deal. However, there are other hurdles that ANZ has to pass before the deal is complete.

For starters, ANZ needs to convince the governments involved that it wouldn't be a negative thing for the two businesses to merge.

A girl stands at a wooden fence holding a big, inflated balloon looking at dark clouds looming ominously behind her.

Image source: Getty Images

Government asks Suncorp and ANZ questions

According to reporting by the Australian Financial Review, the Queensland government wants ANZ to explain how Suncorp's banking division would be allowed to run independently for several years before it allows the deal.

ANZ will also need federal and Treasurer clearance as well.

Queensland's laws, which reportedly date back to Suncorp's formation in 1996 as a combined insurance and banking business, requires the Suncorp managing director to reside in the state and that the company's headquarters must be based there.

After an information request, the AFR learned that in a letter to Queensland Treasurer Cameron Dick, Suncorp CEO Steve Johnston and Chair Christine McLoughlin said they welcomed the opportunity to discuss the deal, maintained the sale was in the best interests of Queensland and the national interest, and committed that the Suncorp Group head office will remain in Queensland.

The newspaper also reported that notes from Dick regarding a meeting with ANZ leadership show the Treasurer was "not opposed to the transaction however the transaction must deliver an outcome in the best interests of Queensland" and that there were merger documents that have additional requirements including "branch presence in specific towns and certain rural lending requirements".

The Queensland Treasury has asked a number of different questions regarding whether Suncorp's bank will have a separate CEO and governance structure, and what sorts of decisions Suncorp Bank will be able to make independently.

Questions were also asked about the end of the transition period regarding customers, the bank licence, and branding.

Concerns about branch numbers

While ANZ has committed that it won't close any Suncorp branches within the first three years, nor will there be net job losses, there is speculation that ANZ could decide to close ANZ branches sooner than expected.

The AFR quoted Finance Sector Union Queensland secretary Wendy Streets, who said:

There are currently around 40 suburbs [or] towns where there are both Suncorp and ANZ branches and we believe these ANZ's will be targeted to close during the three-year moratorium.

At the conclusion of the three-year commitment, it is our view that the savings will come from back office synergies between the two which ultimately will mean a significant amount of Queensland job losses as the work transfers to ANZ Melbourne departments.

The FSU wants caveats on the sales about job security from both ANZ and Suncorp.

Benefits of the deal for ANZ shares

ANZ said that as the smallest major bank, it thinks a stronger ANZ will be able to compete more effectively in Queensland, offering better outcomes for customers.

The purchase price is $4.9 billion, representing 9.3x earnings post-acquisition, full run-rate synergies.

It's expected to add low single digits to ANZ's earnings per share (EPS) on a pro forma FY23 basis, including the full synergies.

Annual 'cost synergies' are expected at around $260 million before tax.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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