The merger, if successful, would be the biggest in Australian history. It would create Australia's largest financial services organization, with a market capitalization of about A$30 billion. Market watchers said the proposed merger will lead to further consolidation among second-tier players in the Australian financial services industry. CBA and Colonial said in a joint announcement to the Australian Stock Exchange the merger is expected to be completed by July. The merged group will rank number one in banking and asset management, and number three in life insurance.

It will have A$95 billion in deposits, A$220 billion in total assets, A$83 billion in total funds under management and A$19 billion in total life assets. The directors of both Commonwealth Bank and Colonial are unanimously endorsing the merger proposal.

Shares in CBA closed down A$1.70, or 6.9%, at A$23 on Friday in Australia. Colonial shares jumped A$1.01, or about 15%, to A$7.76, with more than 10.7 million shares changing hands. The All Ordinaries Index of shares ended the session up 2.9 points at 3199.5 points.

The offer, which had been widely anticipated in the market, includes seven Commonwealth Bank shares for every 20 Colonial shares held. This represents an equivalent value of A$8.75 per Colonial ordinary share, based on the Commonwealth Bank's closing share price of A$25 on March 6, which is a 48% premium to Colonial's closing share price on that date.

Securities in both companies were temporarily suspended from trading on the Australian Stock Exchange earlier this week, pending the outcome of negotiations. Under the offer terms, holders of Colonial's ordinary shares will be entitled to receive the final 1999 dividend of 11 Australian cents a share, which has already been declared. Assuming completion of the merger prior to Aug. 23, all Commonwealth shares issued as part of the merger will be entitled to participate in CBA's final dividend for the fiscal year ending June 30. Colonial's converting preference shares will change to ordinary shares, with the result that those shares will then participate in the offer on the same terms and conditions as other holders of Colonial ordinary shares.

A payment will be made on conversion equivalent to the accrued dividend. Colonial income security holders will be offered a cash amount of A$100, representing face value, per income security plus accrued interest.

An offer of Commonwealth Bank ordinary shares will be made to Colonial option holders on comparable pricing terms as the offer to ordinary shareholders.

-- Dow Jones Newswires