Heartland Group Holdings shareholders have voted overwhelmingly to buy TSB Bank for $620 million, clearing the last vote standing between the Taranaki bank and a merger that would create New Zealand’s seventh largest bank. The deal still has one large hurdle left, though, and it sits with the Reserve Bank.
At a special meeting held in Auckland and online on Wednesday 30 September, shareholders representing 58.09 per cent of Heartland’s issued capital cast votes, and 94.80 per cent of those votes were in favour, Heartland told the stock exchange on Thursday 1 October. The main merger resolution needed at least 75 per cent support. It received 520,505,170 votes in favour and 28,556,745 against.
All four resolutions passed. Shareholders approved the purchase of TSB from the Toi Foundation and the later amalgamation of Heartland Bank and TSB, the issue of 200 million new Heartland shares to the Toi Foundation at $1.25 each, the election of Mark Darrow as a Heartland director once the deal completes, and an increase of $200,000 a year in the pool available to pay non-executive directors, lifting it from $2.4 million to $2.6 million. According to interest.co.nz, the directors’ pay resolution drew the weakest support of the four, at 97.27 per cent, while the share issue drew 98.10 per cent.
Heartland chief executive Andrew Dixson said the result showed investors backed the plan. “Yesterday’s approval is a strong endorsement from our shareholders of the strategic rationale for this transaction and the long-term value it is expected to create,” he said. “It marks an important milestone towards bringing together two complementary banks to create a larger, more competitive New Zealand bank, with greater capacity to invest in future growth.”
The deal was announced on 2 June. Heartland is paying for TSB with a mix of $250 million in new Heartland shares, $56 million of subordinated debt issued by Heartland Bank, and a $264 million vendor loan that the Toi Foundation will provide to Heartland. TSB will also pay the foundation a $50 million cash dividend before completion. The merged lender would be called TSB Heartland Bank, with about $15 billion of New Zealand assets, which Heartland says is a 171 per cent increase on its own New Zealand asset base. The Toi Foundation would end up owning 17.5 per cent of Heartland Group, with one nominee on the Heartland board and two existing TSB directors joining the merged bank’s board.
For Taranaki, where TSB is headquartered in New Plymouth, the question has always been what happens to the local jobs and branches. Dixson repeated Heartland’s promise on that point. “Taranaki would remain a key operational hub for customer banking services, including through its local branch network and customer-facing roles,” he said, adding that the merged bank would also keep Heartland’s existing nationwide network.
Heartland board chair Greg Tomlinson pitched the deal to the meeting as a chance for ordinary people to own a slice of a bigger local lender. “Heartland’s shareholders include many everyday New Zealanders who supported the business when it merged and listed in 2011,” he said. “Being part of a listed banking group gives customers and communities the chance to invest in the bank’s success.”
Not everyone in Taranaki agrees the sale is in the region’s interest. The Taranaki Community Accountability Society went to the High Court in August to try to stop the Toi Foundation’s trustees voting on the sale. Justice Andru Isac declined its application for an injunction on 24 August, Ngamotu News reported, and the trustees went on to approve the sale later that month. Newswire covered the hearing and the arguments on both sides at the time.
The shareholder vote does not finish the deal. Completion is still subject to the remaining conditions, including a material adverse change condition covering TSB, and to the regulatory approvals the merger needs, Heartland said. The biggest of those is consent from the Reserve Bank, which Heartland applied for on 31 August, according to interest.co.nz.
That approval is now tangled up with a separate problem at TSB. On 18 September the Reserve Bank used its powers under the banking prudential supervision law to require TSB to commission an independent report into how it calculates and reports its capital and liquidity ratios, after TSB itself identified and reported issues. RNZ reported that the report, being prepared by Deloitte, is due in November. TSB has said its liquidity and funding positions are sound and that it remains well capitalised, as Newswire reported last week.
Heartland had already warned its shareholders that their approval might not be the end of it. In a stock exchange statement on 25 September it said “This means that if the outcomes of the review are materially different to what is known today, the Proposed Transaction may not complete, even if Heartland shareholders have approved it.” In other words, the investors who voted this week have approved a deal that can still fall over if Deloitte finds something worse than TSB has already disclosed.
Heartland is still aiming to complete the merger in December, according to interest.co.nz, which leaves a narrow window between the Deloitte report landing in November and the planned completion date. Dixson said Heartland would now focus on satisfying the remaining conditions and working towards completion.
The stakes go beyond Taranaki. New Zealand’s banking market is dominated by four Australian owned banks, and politicians and the Commerce Commission have long talked about the need for stronger challengers. A combined TSB Heartland would join Kiwibank as one of a small number of sizeable New Zealand owned banks, pairing Heartland’s specialist lending, such as reverse mortgages and rural loans, with TSB’s everyday banking. Whether it gets there now depends largely on what the Reserve Bank makes of TSB’s books.
Are you a TSB or Heartland customer, or a Taranaki local with a view on the sale? Would a bigger New Zealand owned bank make you think about switching? Share your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂
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