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Heartland Bank merger "compelling"

Friday 29th October 2010

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The proposed merger which Pyne Gould’s Marac unit hopes will fulfil its aspiration to become a bank has “compelling” merits and will reduce risks facing the tie-up’s minor partners.  

Investment bankers Cameron Partners and Northington Partners said there’s a “compelling” case for each member to merge, with Canterbury Building Society and South Cross Building Society each facing a “particularly challenging” environment, and giving them more to gain from a successful merger.  

“In the absence of the proposed merger, other significant initiatives are likely to be required in order for each entity to deliver shareholders commercially reasonable rates of return,” the independent adviser report said.

“We believe such initiatives would be challenging to execute and would not be without material risk.”  

Investors will vote on whether to support the merger next month. It is expected to take effect in January next year with an NZX listing in February.

From there, the holding company, to be known as Building Society Holdings, will pursue a banking licence, provided it meets regulatory approval, such as achieving an investment grade rating.  

Cameron and Northington said the non-bank deposit taking sector is undergoing major changes, with more mergers and acquisitions expected.

The expiry of the extended government retail deposit guarantee at the end of next year will heighten this consolidation.  

The advisers’ report said the case for the merger was “robust” and that depositors and debenture holders won’t be disadvantaged.  

The so-called Heartland Bank merger would create a lender with $2.2 billion of assets and accomplish Marac’s goal of becoming a registered bank. Marac’s aspiration was dented last year when its credit rating was downgraded to a speculative BB+. 

Shares in Pyne Gould were flat at 43 cents, while CBS stock was unchanged at $2.75.

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