What we’ve been waiting for

Suncorp (ASX.SUN) surged to a 5-year high after booking a major win where the Australian Competition Tribunal overruled anti-competition watchdog, the ACCC, after authorising ANZ’s proposed $4.9 billion acquisition of Suncorp Bank. At this point, the takeover will still need approval from the Treasurer, Jim Chalmers, and an official sign-off from the government of Queensland.

Before reviewing the update, a detour to the technicals and Suncorp has inflected above historic resistance after breaking out above the primary downtrend at $15 on the 20yr monthly chart below. This is a bullish technical development and raises scope for additional upside in the coming year. In time Suncorp should challenge the record highs near $20.

Trading Update – Overruled!

Yesterday, the Australian Competition Tribunal has approved ANZ Group’s A$4.9 billion acquisition of Suncorp’s banking business, readily overruling the anti-competition watchdog, Australian Competition and Consumer Commission’s (ACCC), earlier decision that blocked the deal due to concerns about reduced competition in the banking sector. The tribunal’s decision is significant for both ANZ and Suncorp while less relevant to the deal, we expect to see increased discussion on current merger laws.

First, a recap on the journey thus far. The ACCC initially rejected ANZ’s proposed acquisition of Suncorp Bank in August 2023. ANZ had announced its intention to purchase Suncorp Bank in 2022 to enhance its retail presence, specifically its loan book and the larger home lending market, where it has trailed its larger rivals. On the other hand, Suncorp intends to focus on its insurance business after selling its banking unit, aiming to become a dedicated Trans-Tasman insurance company

Originally, the ACCC’s rejection of the deal was based on concerns about the impact on competition within the banking sector in Australia – a view we do not concur with considering that any market share gain for ANZ would not be as material as feared.

ANZ and Suncorp subsequently appealed the ACCC’s decision to the competition tribunal.

Interestingly, we note that despite the positive outcome of the decision for both parties, ANZ shares did not surge higher. Upon closer inspection of other banking analysts, the consensus view is that the acquisition is not likely to significantly increase ANZ’s market share in home lending – hence why we believed that the deal will be pushed through by regulators. Do note that the merger will still be important for ANZ (more on this later when we update coverage of the bank).

Moving on and from this point, the final approval for the acquisition rests with Australian Treasurer Jim Chalmers and the government of Queensland, where Suncorp is headquartered. If the merger is ultimately approved, completion is expected around “mid-2024”.

Commenting on the development, Suncorp Group CEO, Steve Johnston, notes that the sale would now allow Suncorp to dedicate efforts fully to insurance (without distractions from the banking arm) and will transform Suncorp into “a dedicated Trans-Tasman insurance company at a time when the value of insurance and the need for continued investment in a vibrant private insurance sector had never been greater.”

Summary

The approval of ANZ’s acquisition of Suncorp’s banking business represents a significant development for both parties. The decision by the Australian Competition Tribunal to overturn the ACCC’s rejection of the deal is the development we’ve been waiting for. This also confirms our initial view that the deal will ultimately get approval by regulators.

ANZ’s strategic rationale for the acquisition aligns with its long-term growth objectives, aiming to strengthen its market position and capitalize on emerging opportunities. Suncorp’s successful divestment of its banking division underlines the importance of strategic agility and can now focus exclusively on running a Trans-Tasman insurance company (and without the distractions of a banking arm).

Following the results of this, we believe the likelihood of the Suncorp Bank/ANZ deal pushing through has improved dramatically. In light of that development, we have now adjusted our rating on Suncorp (ASX.SUN) back to a BUY for Members without exposure. We will continue to monitor developments here as the merger gets closer to reality.[/subscribe_to_unlock_form]