Pyne Gould Corporation would distribute the bulk of its 72% 'Heartland Bank' stake directly to shareholders as it eyes NZX50 slot

Pyne Gould Corporation (PGC) says should the proposed merger between its subsidiary Marac Finance, Canterbury Building Society (CBS) and Southern Cross Building Society (SCBS) secure the relevant investor and member backing, it will distribute directly the majority of its 72% stake in the combined group to PGC shareholders as it strives to get the financial services provider into the sharemarket's benchmark NZX50 index.

Seven stakeholder groups from PGC, Marac, CBS and SCBS are due to vote on the deal next week. Should the deal be approved the three would form a financial services group initially known as "Building Society Holdings Limited" which would then aim to list in the sharemarket next February, seek an investment grade credit rating from Standard & Poor's and a banking licence from the Reserve Bank. The ultimate aim is to establish a "Heartland Bank" with the ambition of doubling its NZ$2.2 billion asset base within five years through growing family, small business and agricultural lending.

Separate from directly distributing the bulk of its 72% stake in Building Society Holdings to its shareholders, PGC says a "small stake" will separately be placed by PGC to institutional investors at or around the same time as the distribution. The company says it's in the process of determining the final split between the distribution and the placement, which will be sized in order to maximise value for PGC shareholders.

PGC says the decision to distribute its Building Society Holdings stake in this manner was made as part of an ongoing strategic review of PGC’s operations.

"PGC intends to implement the distribution as soon as practicable following the proposed (sharemarket) listing of Building Society Holdings Limited, which is scheduled to occur in early February 2011."

Chairman Bruce Irvine says the distribution and placement of the 72% stake will put ownership directly in the hands of PGC shareholders, the biggest of whom is PGC director George Kerr with a 13.9% stake, and investors and will promote liquidity and price discovery as well as maximising the likelihood of  Building Society Holdings being included in the NZX50 index.

"The distribution and placement will mean that Building Society Holdings will be widely held by a broad range of investors with no single dominant shareholder. The placement will provide cash proceeds for PGC,” Irvine says.

"The key benefits of the distribution and placement include:

- Likelihood of an improved weighting in the NZX50 index due to a wider distribution of shares than would otherwise be the case with PGC as a 72% shareholder.

- Broader institutional investor interest due to likelihood of a higher index weighting and the ability of institutions potentially to access stock via the placement.

- Greater liquidity which helps the buying and selling of shares, reduces pricing anomalies which occur in less liquid stocks, and promotes price discovery.

- Greater transparency for PGC shareholders by owning shares in Building Society Holdings Limited directly, rather than through their investment in PGC

- BSHL would not have one dominant shareholder."

Detailed information on the plans will be provided to shareholders "as soon as practicable", which PGC estimates will be in March 2011.

An independent report on the proposed three way merger notes the "Heartland Bank" hopes to establish a NZ$500 million programme securitising car loans and residential mortgages and could see its costs of funds reduced by up to 150 basis points if it achieves an investment grade credit rating and bank licence.The partners aim to apply for a bank licence next July and the independent report, by Northington Partners and Cameron Partners, estimates this could take up to two years to achieve.

Taking into account an 11.56% stake in CBS held by SCBS, Northington Partners and Cameron Partners say CBS shareholders will own 13.04% of Building Society Holdings, SCBS shareholders 14.75% and PGC shareholders 72.21%.