‘Project Galileo’: Inside ANZ’s $4.9 billion play for Suncorp’s bank

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‘Project Galileo’: Inside ANZ’s $4.9 billion play for Suncorp’s bank

By Clancy Yeates

At about 5.30am on Monday morning, ANZ Bank chief executive Shayne Elliott and his chairman Paul O’Sullivan gave the final green light to a deal Elliott said had been seven years in the making.

In Brisbane, following a frantic weekend of board meetings and final preparations, the two men signed off on ANZ’s biggest acquisition in almost two decades: the $4.9 billion purchase of Suncorp’s banking arm.

ANZ chief executive Shayne Elliott on Monday in Brisbane.

ANZ chief executive Shayne Elliott on Monday in Brisbane.Credit:Peter Wallis

Under Elliott, CEO since 2016, the bank has been focused on cutting costs and offloading non-core businesses, and he says the deal is a sign it is now shifting towards growth.

In truth, however, Suncorp’s bank has been on ANZ’s radar as a possible target for much longer than seven years: ANZ also came close to buying the Queensland bank during the 2008 global financial crisis.

If Monday’s deal is approved by regulators, it will be the biggest transaction in Australian banking since Westpac swallowed St George during the global financial crisis; it will make ANZ the third-biggest mortgage lender in the country; and it will be one of Elliott’s biggest strategic moves.

However, it is likely to face significant regulatory scrutiny, and it’s also emerged that another suitor for Suncorp’s bank - fellow regional Bendigo and Adelaide Bank - missed out on the chance to join forces with Suncorp. Private equity group KKR, which had been in talks about the $4 billion sale of MYOB to ANZ, has now also been told that ANZ is withdrawing from discussions, after considering the purchase only last week.

There has long been market speculation over whether Suncorp - which makes about two thirds of its profits through insurance brands such as AAMI and GIO -would sell off its bank.

In April this year, ANZ was given the chance to dust off its files on the Queensland lender, after it was told Suncorp was considering its options for the bank. While Suncorp CEO Steve Johnson had previously argued the case for keeping the financial conglomerate as one, on Monday he said it regularly also assessed the potential for offloading the bank and focusing solely on insurance.

“What we’re seeing is the significantly increased cost of running these two businesses in terms of regulatory costs, compliance costs, systems investments,” Johnson said on Monday. “We didn’t want to get into a position where we had to move capital to parts of the business that left others, who could use that capital, wanting.”

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ANZ pounced at the chance, launching “Project Galileo”, a reference to the Italian astronomer’s discoveries regarding the sun (Suncorp’s sharemarket ticker is SUN). Sources said members of Suncorp’s deal team, meanwhile, referred to the ANZ camp as Copernicus.

The talks were kept under wraps, but then last week, news leaked that ANZ was looking at buying the accounting software group MYOB from private equity giant KKR. ANZ approached KKR about potentially selling MYOB about four months ago, a source said, and had close to 200 people working in a virtual data room running a ruler over the business.

Yet the market reacted poorly to the potential MYOB buyout. ANZ shares fell, analysts and investors questioned the logic of such a deal, and on Monday ANZ said it was walking away from MYOB.

One source close to the KKR, who said the private equity group was blindsided by the change, questioned if ANZ dumped the plans because it was focused on raising $3.5 billion in equity for the Suncorp deal. The view inside ANZ is it’s a coincidence both deals emerged at a similar time.

In any case, late last week there was a flurry of activity inside ANZ as the Suncorp deal entered its final stages. Following board meetings in Melbourne on Friday and Saturday, Elliott and his chief financial officer Farhan Faruqui flew to Brisbane on Sunday, where ANZ worked out of Macquarie’s office on the deal.

While ANZ trumpets the potential to increase its mortgage book by 17 per cent, competition regulators will run a close ruler over a big four bank swallowing up a smaller rival.

Amid this debate, sources close to regional bank Bendigo and Adelaide Bank say the lender made three separate approaches to Suncorp about a tie-up this year, but it was not given the opportunity to engage.

Suncorp’s Johnson on Monday would not go into details about how it reviewed the future of Suncorp’s bank, nor would he respond to the apparent concerns of Bendigo. But he did point out that it was a cash sale to ANZ, which was a “clean” transaction for Suncorp’s shareholders, who are likely to ultimately benefit through a return of capital.

“I have a very high degree of confidence that this is the best transaction that’s available to us in the market today,” Johnson said.

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