Bendigo and Adelaide Bank announces intention to buy remaining Rural Bank equity stake

Key points

  • Bendigo and Adelaide Bank announces intention to increase shareholding in Rural Bank from 60 per cent to 100 per cent for $165m, or approximately 1.2 times book value
  • Immediately cash EPS and ROE accretive
  • Rural Bank maintains distribution partnership with Elders Limited
  • Reinforces Bendigo and Adelaide Bank’s commitment to rural and regional Australia

Bendigo and Adelaide Bank (BEN) has announced that is has entered into an agreement to acquire Elders Limited’s 40 per cent shareholding in specialist agribusiness lender Rural Bank for $165 million.

The purchase, for approximately 1.2 times book value1, will take BEN’s ownership to 100 per cent. The transaction is subject to a number of conditions, including regulatory and Elders’ financier approval. BEN intends to issue subordinated debt to fund the transaction2.

Bendigo and Adelaide Bank Group Managing Director, Mike Hirst, said the announcement provided BEN with greater exposure to a well performing business with sound credit quality and strong returns.

“It will be cash earnings per share (EPS) and return on equity (ROE) accretive for our shareholders, and also reinforces our commitment to rural and regional Australia by further enhancing our group’s position as the genuine banking alternative to the major banks,” he said.

In addition to the purchase price, Elders will be paid a special dividend for their share of current year’s operating profit up to the settlement date, which is expected during November, 2010.

“The transaction will play to the strengths of both BEN and Elders. It will also allow Rural Bank to grow and develop as a specialist agricultural lender with a strong and committed banking parent, and with potential for increased penetration of the rural sector,” Mr Hirst said.

“BEN has a strong and proud history of working with our partners to provide the best customer-focussed banking experience in Australia. We see an increase in our commitment to Rural Bank as sending a strong positive message to the Group’s existing and potential customers.”

Elders Managing Director, Malcolm Jackman, said both organisations had a longstanding and productive commercial relationship as joint founders and shareholders in Rural Bank.

“However, we both know rural distribution and banking and bank-product development are specialist areas and the time has come for each partner to play to its strengths,” Mr Jackman said.

“For our part, we look forward to this new phase of the relationship and to concentrating on vigorously driving the distribution of Rural Bank products to our clients.”

Rural Bank Managing Director, Paul Hutchinson, said the ownership change offered benefits to Rural Bank customers without involving any change to existing banking relationships or agreements.

“For all Rural Bank customers, the agreement between BEN and Elders represents business as usual,” Mr Hutchinson said.

“Nothing will change from an Elders’ customer perspective. They will still access Rural Bank products through their local Elders branch just as they always have, and Elders will continue to offer Rural Bank products to its banking customers.

“However, as a wholly owned subsidiary of BEN, Rural Bank will be part of a larger Group with a broader and deeper range of complementary products and services. The benefits of this will flow on to Rural Bank customers,” he said.

Rural Bank’s net profit after tax for the 12 months to June 30, 2010 was $55.4 million. Loans under management at this time were $3.7 billion, with retail deposits providing more than 98 per cent of the bank’s funding.

1 As at June 30, 2010
2 Subject to regulatory approval