Bendigo and Adelaide Bank has beefed up its presence in the agribusiness market with the $1.78 billion acquisition of the Victorian government's Rural Finance Corporation.
The deal will see the bank significantly expand its Rural Bank division, which specialises in providing financial services to farmers.
Bendigo and Adelaide Bank boss Mike Hirst said the company had been looking to bolster the presence of Rural Bank across Victoria for some time.
"We had intended to invest in additional capacity in the agri-banking sector in Victoria and this opportunity brings that investment forward," he said.
"Importantly it brings it forward without the drag on earnings that building from scratch might have had associated with it."
Some analysts have questioned the price tag paid for the Victorian government business, but Mr Hirst said the deal was a better option for Bendigo than the alternative of building up its own agricultural lending operations in Victoria.
Morningstar analyst Nathan Zaia said the deal was probably fairly priced and could deliver some positive flow on effects for Bendigo.
"They haven't included any revenue synergies in their forecast so I think that is probably something they have undercooked and leaves them that extra upside," he said.
The combined customer base of Rural Bank and Rural Finance Corporation will be about 5,200.
Mr Hirst said the bank hoped to tap into opportunities to provide transactional services such as deposit accounts to the farmers on Rural Finance Corporation's books.
"That's a very obvious one we think we can capitalise on," he said.
He added that the agricultural business had been a strong performer for the lender, despite the potential for disruptions due to weather events and other calamities.
"It does have a longer cycle than some other parts of the economy, but invariably it is a good performing sector over the long term and that has been our experience with our Rural Bank business," he said.
Bendigo will partly fund the acquisition through a $230 million institutional capital raising and $50 million share placement plan for ordinary investors.
Shares in the bank, which last closed at $11.73 on Friday, have been placed in a trading halt while the bank carries out the capital raising.
The bank has guaranteed the jobs of Rural Finance staff and has committed to maintain its 11 offices for at least three years but Mr Hirst said branches would likely be merged with Bendigo's own down the track.
"As leases run out, either in their premises or our premises in those locations then we will look to bring those two together into the one set of premises," he said.
The Victorian government expects to make a profit of around $400 million from the sale and will use to proceeds, plus a 15 per cent federal government incentive payment, to fund infrastructure spending.
Share
