Nab In $900m Us Bank Takeover
The Age
Friday November 30, 2007
EXPOSURE to the world's biggest economy and the world's growth economy, and new biofuels that may make the world cleaner, all fed National Australia Bank's $900 million play for US agricultural bank Great Western.
The deal will give NAB exposure in the states of South Dakota, Iowa, Nebraska, Kansas, Missouri and Arizona.Chief executive John Stewart would not rule out more US acquisitions, as Great Western had an acquisitive tradition that matched NAB's desire to break into 29 US regions."If we saw ways where we could get into those other clusters pretty cheaply, and especially if prices over the next few years are subdued in the US, then we will look at them," he said.But NAB paid 19.2 times Great Western's expected earnings - a price Mr Stewart said he would be loath to set as a standard for future acquisitions.Great Western will bring to NAB assets worth $3.5 billion, 100 branches and 800 employees. Mr Stewart compared its size with that of Elders Rural Bank. The deal puts NAB firmly back into the US market - a market it all but exited in 2001 when it sold its HomeSide mortgage business. The bank now earns about 2% of its money in the US, compared with about 10% in 2000. The $3.5 billion NAB lost from HomeSide ended eight consecutive years of record profits and began a slide that culminated in a $360 million currency exchange scandal in 2004. The bank's profit returned to record highs last month, with a $2.44 billion result for the second half.Mr Stewart said the deal would help NAB access fast-growing US food exports to China's booming economy."The share of US agri-exports to China and Mexico is nearly triple what it was in 1990," he said. "In addition, biofuels are increasing in popularity. Corn prices have jumped by 50% in the last year, partly due to its use in ethanol production."Mr Stewart said global agricultural trade increased 50% in the first half of the decade as the population and economic strength of developing countries grew."If they think China is going to drive the US agribusiness, I might have questions over that," Constellation Capital Management fund manager Peter Vann said. He said China had plans to be self-sufficient in many agricultural products.Mr Vann said that while the investment was small for NAB, he was concerned about a potential downturn in the US."I do hope this time they've got their risk-management guys having a close look at the business," he said. NAB finance director Mark Joiner said he expected to create assets worth $3 billion from the US over the next three years, during which time the bank expected to recoup double its investment in Great Western.The deal would cut earnings per share by 0.5 of a percentage point next year, but the impact would be absorbed by 2010, NAB said. Mr Joiner said in a "worst-case scenario" NAB might pay for some of the deal by enticing investors to reinvest dividends. Mr Stewart reiterated his target of increasing return on equity - a measure of profitability - in line with the bank's peer group, and increasing it above the average in chosen markets. He also reaffirmed that 65% of net income would be paid to shareholders as dividends.NAB shares closed at $39.08, down 33?.LINK? Watch NAB's presentation at tinyurl.com/2sccuh
© 2007 The Age