Banks Merge to Challenge Big Four
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TSB is selling itself to Heartland Bank for $620 million in a deal that would create New Zealand's largest regional bank.
The conditional agreement would see Heartland Group buy all of TSB's shares from the Toi Foundation to create TSB Heartland Bank. The combined bank would have the scale to compete with the major banks in regional markets.
"Our commitment to specialist products remains unchanged - this will simply be enhanced by full-service capabilities in New Zealand," Heartland Group chief executive Andrew Dixon said.
"By combining Heartland Bank's specialist product expertise with TSB's cost-effective funding and everyday banking services, we'll be able to offer more New Zealanders a better value banking alternative," he said.
Dixon said the larger bank would be better positioned to invest in products and technology while delivering improved returns to shareholders.
"As a larger bank, TSB Heartland Bank will be in a stronger position to keep investing in products and technology, while supporting the delivery of improved financial returns for our shareholders."
The deal values TSB at 76 percent of its book value. The Toi Foundation would receive ordinary shares in Heartland Group, giving it a 17.5 percent stake in the merged entity.
Dixon said the scale would increase financial resilience and competitiveness.
"As the NZX/ASX-listed parent company of a larger, more efficient New Zealand banking business, Heartland will be able to deploy capital more effectively across the group, and have the scale needed to deliver a stronger cost-to-income ratio through greater operating leverage."
He said the scale and product diversification may also support an uplift in the merged bank's long-term credit rating.
The merger requires regulatory and shareholder approval. If approved, it is expected to be completed by the end of the year.
Transaction costs are estimated at about $15 million, including $7 million which will be included in Heartland Group's full year net profit for the year ending June 30. The remaining $8 million will be expensed the following year.
A Toi Foundation nominee would initially join the Heartland Group Board, while two existing TSB directors would join the TSB Heartland Bank Board.