This live blog has now ended.
Heartland Group Holdings is holding a special shareholder meeting this afternoon to discuss its proposed $620 million takeover of TSB.
Heartland and TSB say the combined entity – TSB Heartland Bank – will create a New Zealand “challenger bank of scale” with a regional focus.
Bank mergers don’t happen very often in New Zealand, so interest.co.nz will be live-blogging the proceedings of the special meeting, held at Auckland’s Eden Park and streamed online.
As a dual-listed company on both the New Zealand Stock Exchange (NZX) and the Australian Securities Exchange (ASX), Heartland is holding this meeting to try and obtain shareholder approval for the proposed deal.
Throwing a potential curve ball into the proposed deal, the Reserve Bank last week said it had asked TSB to get an independent report after TSB identified and reported issues to the prudential regulator on how it calculates and reports its regulatory liquidity and capital ratios. TSB has hired Deloitte to do the report.
Heartland is seeking votes from shareholders on the following four resolutions:
- Resolution 1: The proposed acquisition by Heartland of all TSB shares on issue from Toi Foundation, and the subsequent merger of Heartland Bank and TSB
- Resolution 2: The issue of 200 million Heartland shares to Toi Foundation as part of the consideration for the Proposed Transaction
- Resolution 3: The appointment of a Toi Foundation nominee (Mark Darrow, current Chair of the TSB board of directors) to the Heartland Board
- Resolution 4: An increase to Heartland's annual fee pool available for director remuneration
According to Heartland, Resolution 1 is a special resolution and needs a minimum of 75% approval from the votes cast by Heartland’s shareholders. Resolutions 2 through 4 are standard resolutions and require approval by a majority of 50% or more to pass.
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4:20pm
The special shareholders’ meeting has come to an end. (For clarity, the meeting was wrapped up at 4pm, this interest.co.nz scribe is just slow at writing things up.) Tomlinson closes the meeting and invites attendees to join the directors and management team for refreshments.
Heartland will release the vote results from the meeting tomorrow morning (Thursday) at 8:30am on the NZX and ASX. That’s a wrap, thanks for reading!
4:15pm
Another question gets asked about Heartland’s fourth resolution, which is an increase to Heartland's annual fee pool available for director remuneration. Heartland’s board has proposed an increase in the total annual fee pool to $2.6 million, up from the current fee pool of $2.4 million. The last time Heartland increased its annual fee pool for directors was in 2023. Heartland wants to increase the director fee pool by $200,000.
Heartland says the extra $200,000 in fees would cover the appointment of the Toi Foundation nominee to the Heartland Board post-acquisition and two TSB directors to the TSB Heartland Bank board post-takeover.
Heartland also wants to use this extra cash in the director fee pool to commence paying committee fees to Heartland group directors, who are members of board committees, for their time and expertise, as a result of the group’s “scale and complexity” following the proposed merger. Currently, the Heartland group pays fees to directors who chair Heartland group board committees but doesn’t pay fees to other committee members.
“Why aren't the deck chairs rearranged to accommodate another director to come onto the board? To me, your director fees seem very high,” the shareholder asks.
Heartland Bank NZ chair Bruce Irvine answers this question.
“I think we all acknowledge the issue around the fact that with the regulatory compliance that we have, there are certain requirements for a number of independent directors at each level of the organisation. So the Australian bank has to have a certain number of independent directors, uh, as required by the regulator in Australia. The same thing in New Zealand. The one thing we have done, I think there are three or four situations where we have replicated directors on more than one board and by doing that, we are actually achieving quite significant savings in terms of the total pool,” he says.
“So that may not seem that great, but we actually have worked very hard to meet the regulatory requirements but reduce the directors pool as much as possible.”
Irvine gave the example of how he sits on Heartland's Australian board, and the benchmarking for a normal Australian director is “something like $140,000, $150,000 or something like that.”
“And I get an extra $30,000 for sitting on that board, but I have to take a full share of the workload, and I'm on all of the committees in Australia,” he says.
“So again, what we're trying to do is keep the fees down as much as possible. But we are constrained by the regulatory requirements in the 2 different banking environments.”
4:05pm
The meeting reaches the third resolution: The appointment of a Toi Foundation nominee (Mark Darrow, current Chair of the TSB board of directors) to the Heartland Board. Toi has nominated Mark Darrow, who is currently chairman of TSB, Te Whatu Ora, the Civil Aviation Authority and the Advisory Boards of Armstrong and PB Tech. Darrow has been the chair of TSB since January 2022.
Following completion of the takeover, one Toi Foundation nominee would be appointed to the Heartland Group board and two existing TSB directors would join the TSB Heartland Bank board.
Darrow stands up to make a speech. “When the merger was first proposed, the TSB Board had to consider and opine that the proposal was in the best interests of TSB Banking. That decision was straightforward,” he says.
“I'm on public record as supporting the merger from day one, pointing out the opportunity to create a genuine challenger bank in New Zealand. Noting the incredible change that the banking sector is currently going through, the need for scale and synergy, and the need to source growth capital, which TSB does not currently have with a philanthropic shareholder.”
He goes on to say that TSB has made “significant improvements” over the last five years, stabilising technology and addressing longstanding regulatory compliance issues, the last of which are being addressed now.
“All issues have been self-identified as part of our uplift. There is still some residual work to be done, but we are very proud of the results TSB has achieved, not just in compliance, but in governance, executive capability, profitability, cost base reduction, and return on equity,” he says.
3:58pm
Someone online asks Heartland to provide more info on TSB having to get an independent report, which gets a swift decline from Gibbons, who says Heartland can’t comment as the report doesn’t have anything to do with Heartland.
Another online question that comes through asks: With AI becoming an increasing worry, is Heartland confident the process of merging won't be interrupted by a “deviant actor”?
Tomlinson says he can't answer that but adds that Heartland had gone through a “major upskill within our digital part of the business.”
3:50pm
Someone online asks: Why not call the merged entity Heartland TSB Bank, instead of TSB Heartland Bank? This gets chuckles from the audience.
“Yeah, I don't know really, so I can't answer that, I'm not the branding expert,” Tomlinson says. “But look, that's respect to both entities. TSB has got a strong brand and a very old and established brand.”
3:45pm
A shareholder in the audience asks what degree of confidence Heartland could give shareholders that the technology integration across the merging of the two banks will be budgeted and completed successfully.
Tomlinson says there's been “a lot of uplift” in Heartland's technology area. “Not only have we increased that internally, we’ve also increased it externally,” Tomlinson says.
3:40pm
We’re now onto questions, starting with questions submitted before the special meeting. The first question out the gate asks what impact the takeover could have on total deposits once the two banks become a single deposit taker, given some customers will currently hold deposits with both Heartland Bank and TSB.
“Both banks have considered the potential effect of the merger on depositor behaviour and we are actively monitoring our respective depositor bases. While we acknowledge that some depositors who currently hold funds with both banks may choose to redistribute a portion of those funds, our analysis to date indicates that the potential impact would be limited,” Tomlinson says.
“We do not expect the merger to result in a material reduction in deposits over the 12 months following completion. The expected customer overlap is relatively low.”
3:30pm
Dixson finishes up: “We believe this transaction would also create a stronger platform for the wider Heartland Group, with the potential to improve earnings, dividends and returns for our shareholders over time.”
3:28pm
Following completion, the two banks would be integrated progressively over a period of up to three
years, according to Dixson. Detailed integration work would be coordinated through an Integration Management Office and overseen by the TSB Heartland Bank Board.
3:25pm
Dixson says the transaction is expected to create “material value” for Heartland shareholders.
“Normalised earnings per share is expected to increase by more than 20% in the first year after completion, based on the full run-rate cost benefits. The transaction is also expected to support a stronger dividend per share profile and improve return on equity,” he says.
3:23pm
Dixson is now discussing the merger's transaction structure. The TSB price tag is $620 million and this comprises:
- A $50 million pre-completion cash dividend from TSB
- $250 million of ordinary shares in Heartland
- $56 million of subordinated debt issued by Heartland Bank as eligible Tier 2 capital, and
- A $264 million vendor loan provided by Toi Foundation to Heartland
3:21pm
“The merged bank would have a broader and more balanced loan book,” Dixson says.
“Residential lending through home loans and reverse mortgages would be the largest component, constituting approximately 65% of gross finance receivables. This would be complemented by motor finance, commercial property lending, rural lending and business finance.”
3:20pm
Tomlinson has finished up his speech and Heartland Group Holdings CEO Andrew Dixson has jumped up to speak.
He says on a pro forma basis, TSB Heartland Bank would have approximately $15.1 billion of New Zealand assets, increasing the New Zealand asset base by approximately 171%. When including Heartland Bank Australia’s assets, TSB Heartland Bank would have $18.3 billion in total assets.
3:16pm
Tomlinson says the Taranaki region’s connection with TSB will remain an important part of the merged bank’s identity. A Taranaki community group tried to block the proposed sale of TSB to Heartland Group in August, but the attempt to injunct the sale failed.
Post-takeover, Tomlinson says Taranaki will continue to have a customer banking hub, including a local branch network and local customer roles. He doesn’t say whether any roles in Taranaki will be cut.
3:14pm
Tomlinson describes Heartland Bank as having built “specialist product expertise”, whereas TSB brings “established everyday banking capabilities, together with an efficient funding base.”
“TSB Heartland Bank would be regionally focused. TSB was established in Taranaki in 1850. Heartland’s origins trace back to Ashburton in 1875, and Canterbury remains an important part of our identity, employment and customer base. These histories would form an important foundation for the merged bank,” Tomlinson says.
3:12pm
Scale is important in banking, according to Tomlinson. “It supports investment in technology, customer service and risk management. It also creates a stronger platform to provide increased competition and choice in a market dominated by larger banks,” he says.
3:10pm
Heartland Group Holdings chair Greg Tomlinson takes to the stage. He tells the room that the board has “carefully considered” the proposal and unanimously supports it.
“The proposal brings together two established New Zealand banks with different strengths, strong regional histories and a shared commitment to customers. It would create a bank with approximately $15 billion in New Zealand assets and the scale to compete, invest and respond to customers’ changing needs,” he says.
3:05pm
Heartland Group Holdings' share price on the NZX was $1.26 per share when the meeting began this afternoon.
Pheobe Gibbons, the chief legal officer of Heartland Bank, has opened the meeting. She is discussing what attendees can expect from the meeting and introducing those on the stage.
2:57pm
The shareholder meeting staples are all here: a sea of grey hair, lots of suits and some beige background music.
While the World Cup Lounge can apparently fit up to 950 people, interest.co.nz’s finger counting puts the current number of people in the room at around 60. Heartland people are taking to the stage now to get settled in their seats.
2:52pm
As mentioned above, today’s meeting is a hybrid affair, held in-person at Auckland’s Eden Park in the World Cup Lounge and also livestreamed online. Interest.co.nz has arrived at Eden Park and can report that the meeting’s vibes are on the buzzy side as attendees trickle through the door.
Although the World Cup Lounge is equipped with its own private bar setup, Heartland is opting to present from a stage in the centre of the room rather than behind the bar. There are over 160 seats in front of the stage, with a chunk filled already.
Sequence of events
Here’s a timeline of the proposed deal so far:
June
- Heartland signs a deal with TSB's parent, the Toi Foundation, to buy TSB for $620 million
- Toi Foundation chairman says Heartland deal follows talks with multiple parties after an unsolicited approach in late 2024
- Heartland CEO says the proposed merger provides an opportunity for Heartland to scale its home lending portfolio
July
August
- Heartland CEO says it's no surprise there's interest in TSB from other parties after Kiwibank's parent company expresses interest in TSB
- Taranaki community group's interim injunction application against the sale of TSB to Heartland Group gets dismissed
- Heartland gets Toi Foundation trustee approval to buy TSB Bank
September:
- Heartland releases independent report that says TSB deal will lower Heartland's funding costs, helped by non-interest-bearing deposits in transaction accounts
- The RBNZ orders TSB to get an independent review of capital and liquidity ratios, Heartland says it will consider any implications for the proposed merger
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