sun info from a director broker..

hi guys.. got a broker director who emailed this top clients regarding this share.. thought i would share it..

" There is currently a share price arbitrage with Suncorp Metway (SUN) and Promina Insurance (PMN). The net benefit is approximately 87 cents per SUN share at the current price of $20.50 per SUN share.

If you are not aware, SUN have recently announced a merger with PMN. SUN control the "Suncorp" branded banking business, which operates predominately in Queensland. SUN also purchased the GIO insurance business (from AMP) which was previously owned by the Government of NSW before it was privatised. PMN operate a number of insurance businesses including the "Australian Pensioners Insurance Agency" , "AAMI" and the "Shannons" insurance brands.

The terms of the deal are the merger by SUN are:

1) payment of $1.80 per PMN share; and

2) the issue of 0.2618 Suncorp shares for each PMN share.

The deal has been recommended by the PMN Board and has been approved by the ACCC (which was provided on 20 December) which had concerns over the merger of two large Australian insurance businesses. The ACCC will now allow the deal to proceed.

This is how the share price arbitrage works:

You can currently buy SUN shares for $20.50 (a 50 cent dividend is expected to be paid in early March). Net cost of shares is therefore $20.00 (ex the dividend).

Alternatively, you can buy PMN shares (currently at $6.97 )and accept the terms of the proposed merger. the net effect of this transaction is summarised as follows:

Cost of PMN shares $6.97

Less Estimated Dividend (0.15)

Less SUN cash offer for shares (1.80)

Net cash cost of PMN (ex div) $5.02

Convert to 0.2618 SUN shares - effective cost of SUN share is ($5.02 / 0.2618) $19.17.

Therefore you are acquiring SUN shares at an effective price of $19.17 rather than the current ex dividend price of $20.00. This is an 83 cent saving per SUN share (or a 4.3% discount).

The risks of this strategy are that the SUN and PMN shareholders vote against the merger, however this would seem unlikely as the PMN Board have publically stated their approval of the SUN offer.

One of the other benefits of the merger is that the new merged entity would become the 12th largest listed company on the ASX and this would require a re- weighting in various managed fund portfolios.

On a prospective basis, the new merged entity would be on an attractive yield (5% plus franking credits) and is anticipated to realise some significant cost savings by merging the two insurance businesses.

Prior to the bid for PMN, SUN shares were trading at $23.50 per share.

If you already own SUN shares you can still get the benefit of this arbitrage by selling your SUN shares and utilising the funds to purchase PMN shares (to get back into SUN when the merger goes ahead). I am happy to assist in this transaction if it interests you. "

cheers
hu$h