Vote clears the way for a merged bank, pending Reserve Bank approval
Heartland Group shareholders have approved a $620 million deal to buy TSB Bank and merge it with Heartland Bank.
Shareholders representing 58.09% of Heartland's issued capital voted at a special meeting on Wednesday. A total of 94.80% of votes cast were in favour.
Heartland will buy all TSB shares held by the Toi Foundation, then merge the two banks into TSB Heartland Bank. The deal still needs Reserve Bank of New Zealand (RBNZ) approval.
Payment is a mix of new shares, vendor loans and subordinated debt held by Toi. None of the nominal $620 million will be paid in cash. Shareholders approved issuing 200 million Heartland shares to Toi at $1.25 each. The foundation will become a 17.5% shareholder in Heartland.
What shareholders heard
Heartland chair Greg Tomlinson told the meeting the deal will create an enlarged New Zealand bank with about $15 billion in assets. He said the combined entity "can do more together than either could do alone."
Chief executive Andrew Dixson said the deal will raise the New Zealand asset base by about 171%. He said the added scale would help cover technology, risk management and compliance costs, which "disproportionately affects smaller subscale banks."
Dixson said synergies of about $34 million will be fully realised over three years. He said the deal would be immediately accretive to per-share earnings and dividends.
Independent expert Calibre Partners noted the price is about 0.76 times TSB's book value. It said the benefits would outweigh the negatives. Asked what the negatives are, Tomlinson said, "there haven't really been any negatives, to be frank."
Shareholder William Cairns, the last to speak, called it "a great deal for shareholders." Dixson later told the NZX the vote was "a strong endorsement from our shareholders of the strategic rationale for this transaction."
Home lending in focus
TSB's home loan book stood at $6.5 billion as at 30 June, interest.co.nz reported. Heartland offers motor finance, reverse mortgages and rural lending, among other products.
Dixson has said TSB gives Heartland scale in home loans it could not reach organically. Under Heartland's pro forma figures, home loans would make up 44% of the group's $15.1 billion in gross receivables.
An independent report by Calibre Partners said the deal would give Heartland "immediate scale" in home loans and lower funding costs. It also said Heartland expects more competition for reverse mortgages.
Regulatory steps remain
The RBNZ required TSB on 18 September to commission an independent report on how it calculates capital and liquidity ratios. TSB identified and reported the issues itself.
Deloitte is preparing the report. A draft is due at the end of October, with the final due in November. TSB said its liquidity and funding positions are sound and it remains well capitalised.
Heartland said it would consider any findings, including implications for the deal, NZ Herald reported. Dixson told interest.co.nz the target completion date remains December.
A Taranaki community group sought a High Court injunction in August to stop the sale. The application failed, with Justice Andru Isac calling its claims "legally and factually weak." Toi approved the deal on 27 August.
Heartland has said Taranaki would remain a key hub for customer banking. Mark Darrow will join the Heartland board at completion, and two TSB directors will join the merged bank's board.
