The Australian Competition and Consumer Commission, or ACCC, has denied authorisation for ANZ Group (ASX: ANZ) to acquire Suncorp Bank (ASX: SUN).

Competition concerns were always going to be the largest hurdle. Senior Equity Research analyst Nathan Zaia who covers the banks believed the acquisition would be approved.
Zaia said, “It would not materially alter the competitive landscape as there is abundant competition from other retail banks, member-owned banks, foreign banks, and nonbank lenders.”

But the ACCC is not satisfied the acquisition is not likely to substantially lessen competition in home loans nationally, and business and agriculture lending in Queensland.

Zaia believes the potential for a preferred Bendigo and Adelaide Bank (ASX: BEN) merger with Suncorp Bank, which combined would have 5.2% market share of home loans, also seems to have fed into the decision.

ANZ Group will now take the decision to the Australian Competition Tribunal. They remain adamant the deal is not to the detriment of competition. The ACCC could be overruled, but it is looking increasingly unlikely the deal will proceed.

When the deal was announced Zaia thought value accretion looked likely to be offset by the dilutive equity raising and integration / separation costs. But it was not material enough to move Zaia’s ANZ Group fair value estimate of $31 or Suncorp fair value of $13.

Backing the deal out of his forecasts now does not move his fair value estimates either, with costs of working on the deal, preparing for integration, and raising equity not large enough to move the dial.

ANZ Group shares rose modestly following the announcement, with excitement of added scale and potential synergy benefits dwarfed by fears integration leads to cost blowouts or service issues.

ANZ Group raised $3.5 billion to help fund the acquisition, which Zaia assumes is returned to shareholders via an on-market share buyback. He does not believe the funds should be held as firepower for future acquisitions, the temptation to spend could see management make investments outside its core banking operations.