Merger proposed to create new bank

Financial services businesses Canterbury Building Society (CBS), Southern Cross Building Society (SCBS) and Pyne Gould Corporation (PGC) have signed a memorandum of understanding involving a proposal to merge their banking-related activities.

In a statement today, the businesses said the were evaluating a merger that would create a New Zealand-owned banking group "with scale and resources to work with customers in Heartland New Zealand", with headquarters in the South Island.

The merged entity, with a starting asset base of about $2.2 billion, would have the critical mass to obtain a banking licence, the statement said.

The proposal envisaged that the merged entity would be listed on the NZX, providing the only opportunity for New Zealand investors to own shares in a bank focused on the home market.

It would initially have 360 staff and about 70 customer outlets around the country.

Transaction details were yet to be finalised, but it was envisaged that the merger would be facilitated by amalgamating CBS and SCBS and then by the acquisition of applicable PGC businesses, primarily its wholly owned subsidiary Marac, the statement said.

"The project is in its early stages, with due diligence still to be completed before a formal proposal can be put to the respective owners of the merging entities - expected to be in the latter part of this year."

The branding strategy for the merged entity was being developed and would incorporate the "Heartland" vision of the three parties.

The respective ownership proportions and board structure of the merged business were still to be agreed, but PGC would likely be the largest shareholder.

A banking licence would bring advantages such as credibility and a lower cost of funds - levelling the playing field with other banks in this country, which were mainly Australian-owned and driven, the statement said.

"We aim to establish and leverage a nationwide presence, broad depositor base and distribution networks to market a broadened range of products and services across the customer base."

The goal of bringing together the three strong and recognisable brands would be to more than double the combined asset base.

"Most importantly, the scale and growth opportunities resulting from the consolidation will drive greater shareholder value than would likely be achievable with three separate entities," the statement said.

It was hoped an implementation agreement would be in place within the next few months, and then to make more detail available on the proposal, including shareholdings and board and management structures.

Under the current proposal, approvals would be needed from various stakeholders, including shareholders, depositors, debenture holders and regulators.

The merger would also need an amendment to the Building Society Act to allow shareholders in listed building societies to have one vote per share - and not one vote per shareholder - on special resolutions.

Representations on the matter were being made to the appropriate authorities.

If all approvals were granted it was expected the merged entity would start trading by early next year. Should the merger proceed as expected, it was anticipated a banking application would be made by the middle of 2011, the statement said.

- BusinessDesk