When a deal needs to be done, it helps if all the parties know each other.
The seeds of Westpac Banking Corp’s success at seeing off its biggest domestic rivals to acquire Lloyds Banking Group Plc’s Australian business were planted long ago.
As leaders of their banks, Lloyds and Westpac chief executives Antonio Horta-Osorio and Gail Kelly had a strong relationship supported by a commercial relationship between the two banks that stretched back many years .
So in mid-July when Lloyds kicked off an auction for its Australian business and asked interested parties including ANZ Ltd, National Australia Bank Ltd, Macquarie Group Ltd and Pepper Group to sign confidentiality agreements, Kelly and her team lead by Rob Whitfield head of the Westpac Institutional Bank and Harvey Carter Head of Merger and Acquisitions went to work.
Kelly assigned a team of more than 100 people to work on the due diligence of the Lloyds businesses that were for sale supported by advisers UBS - one of Lloyds corporate brokers in the UK, Gilbert Tobin and PwC.
The Lloyds business included an asset finance business, Capital Finance Australia Ltd and its corporate portfolio, BOS International Australia Ltd. The motor vehicle finance book with assets of $3.9 billion, the equipment finance book of $2.9 billion and the corporate loan portfolio of $1.6 billion.
For Westpac the businesses gave its asset-finance unit reach in rural Australia by adding about 210,000 new customers while cementing existing corporate relationships. Lloyds’ clean loan book contained many of the same 28 companies that Westpac lends money to. This business would cost Westpac $1.45 billion, 1.22 times net tangible assets, but would add $100 million in 2015 to cash earnings.
Lloyds’ Australian business, Kelly and Whitfield figured, delivered the right strategic fit. The integration of people was considered easier than other acquisitions because many of Lloyds’ motor vehicle and equipment finance employees would simply transfer to Westpac, which needed them to continue servicing their customer base.
Knowing how valuable the Lloyds business could be Kelly and her merger team aggressively pursued Lloyds even as ANZ and NAB, after initial due diligence, dropped out of the race.
The Westpac team were relieved to hear that Lloyds preferred Westpac because the London-based group wanted to sell its remaining Australian business to one buyer without having to split the assets among a variety of suitors.
Still, there were potential concerns that because of St George’s motor vehicle finance business there may be concerns raised to the Australian Competition and Consumer Commission.
Gilbert Tobin, hired by Westpac to be its legal adviser on this transaction, drafted in their ACCC specialist Gina Cass-Gottlieb to allay such concerns after much detailed analysis by the Westpac team on the market.
When final bids were submitted September 30, Westpac had every reason to be confident that these relationships would provide a decisive factor. That confidence was well placed.