Pyne Gould Corp launches $2.2b bank merger

Pyne Gould Corporation, Canterbury Building Society and Southern Cross Building Society are to merge their banking related activities in a move that will create a $2.2 billion business.

The merger will give Pyne Gould Corp (PGC) the critical mass it needs to obtain a banking licence as part of his long-running plan to turn subsidiary Marac into a registered bank.

The three established businesses today signed a memorandum of understanding for the proposal, with plans to list the merged entity on the NZSX early next year.

PGC have also finally put a deadline on the proposed new bank, with indications a banking application will be made by the middle of 2011 if the merger proceeds as expected.

None of the parties involved are currently a registered bank. The two building societies were approved for the Crown deposit guarantee scheme yesterday, while Marac secured the same approval in March.

The business would have a starting asset base of $2.2 billion, 360 staff and about 70 customer outlets around New Zealand, with a “heartland” target market.

The details of the transaction have yet to be finalised, but the initial plan is to amalgamate Canterbury (CBS) and Southern Cross (SCBS) building societies, followed by the acquisition of PGC’s banking business, including Marac.

Due diligence is still to be completed and a formal proposal is not expected until the latter part of this year. An implementation agreement should be in place within the next few months and it will still need approval from shareholders, depositors, debenture holders and regulators. The Reserve Bank has the final say on issuing a banking licence.

Under the current plan, the business would be based in the South Island and PGC is likely to be the largest shareholder, although board structure and ownership proportions are still to be determined.

The new business’ aim is to more than double the $2.2 billion asset base in five years.

In a joint statement released this morning, the three companies said they believed the consolidation would create a critical mass and quality of assets to support an investment grade credit rating and a banking licence.

They said an asset base of more than $2 billion provided the scale and diversity required to support an application for a bank licence.

“A banking licence brings advantages such as credibility and a lower cost of funds – levelling the playing field with other banks here, which are mainly Australian owned and driven. We see a significant opportunity in entering the banking market as it is clear to us that New Zealanders and New Zealand businesses are seeking an alternative to the incumbent banks in the markets we intend targeting.

As well as regulatory approval, the merger will also need an amendment to the Building Society Act that would allow shareholders in listed building societies to have one vote per share – instead of one vote per shareholder - on special resolutions.

Advisers to the three entities include First NZ Capital, PricewaterhouseCoopers and Chapman Tripp.

Pyne Gould Corp shares (NZX:PGC) opened today at 44c.