Westpac Banking has agreed to proceed with a bid worth about A$16.6 billion (US$16 billion) for St George Bank, the biggest banking takeover in Australia, after completing due diligence, the banks said on Monday.
The two banks have signed a merger implementation agreement on the same terms as previously announced: 1.31 Westpac shares for every St George share.
The two banks said an exclusivity period due to expire on Tuesday has been extended, although this did not prevent St George from considering any superior proposals if they emerge.
Last week, National Australia Bank said it was closely watching St George to assess whether it might fit with NAB's business, but it has not decided whether to bid.
Analysts say NAB is the most likely potential rival suitor for St George among the large Australian banks, although Westpac has a distinct advantage with its Chief Executive Gail Kelly's knowledge of St George after she spent nearly six years at the helm there.
The Westpac deal implies a value for St George shares of A$29.89. St George's stock rose as much as 2.5 percent to A$33.14 on Monday, a near 11 percent premium to the Westpac offer and suggesting the market sees scope for a higher bid.
There are no break fees under the terms agreed on Monday, after Westpac waived an earlier planned A$100 million break fee.
The combined entity would have a market capitalization of around A$61 billion, overtaking Commonwealth Bank of Australia's around A$56 billion, according to Reuters data. It would rank second to National Australia Bank by asset value.
Under the terms, St George shareholders are expected to vote on the proposed takeover by early November, and the deal would be finalized in late November.
The banks said the merged institution will have a AA credit rating, putting it in a strong position to weather a difficult debt environment that has driven up funding costs for St George.
The merged bank would be Australia's largest home lender with a market share of 25 percent, and the largest wealth management provider with funds under administration of A$108 billion.