'Heartland Bank' boss acknowledges interest in buying PGG Wrightson Finance

By Gareth Vaughan

The boss of the new financial services provider created through the merger of Marac Finance, CBS Canterbury and the Southern Cross Building Society, says he'd be interested in buying rural lender PGG Wrightson Finance if it's put on the block.

Jeff Greenslade, managing director of the new Building Society Holdings, told interest.co.nz that rural services provider PGG Wrightson had made it clear that it hadn't yet decided whether its finance company subsidiary, PGG Wrightson Finance, would be sold.

"But obviously if they did decide to be a seller then clearly we would have an interest," Greenslade said.

"We are interested in consolidation opportunities where they fit with our strategy and clearly rural New Zealand is one of our stated strategic platforms."

Pyne Gould Corporation (PGC) which owns 72% of Building Society Holdings after merging Marac into the group and for whom Greenslade is CEO, revealed on Christmas Eve it had agreed to sell its 18.3% stake in PGG Wrightson to China's Agria Corporation for 60 cents a share, well below its carrying value for the stake of 82c per share leaving PGC facing a write-down of about NZ$30 million.

The sale came as Agria opened a partial takeover offer for PGG Wrightson, whose new managing director George Gould recently resigned as a PGC director, which is designed to lift its stake in the rural services business to 50.01% after initially buying a 13% stake in October 2009.

However, this morning PGG Wrightson revealed it had decided to let a new party, which has indicated an interest in making a full takeover offer for PGG Wrightson, undertake due diligence. Under a lock-up deed between PGC and Agria, the price of the offer can be increased and PGC's acceptance is conditional on Agria's partial takeover offer succeeding.

Agria wants PGW to refocus on 'core business'

Agria's CEO, Xie Tao, says PGG Wrightson's business requires restructuring and a refocus on the core businesses of AgriServices and AgriTech to achieve its full potential.

PGG Wrightson Finance posted a 15% rise in annual profit to NZ$8.9 million last year, although total comprehensive income more than halved to NZ$5.9 million from NZ$12.9 million in 2009 due to a NZ$2.9 million loss stemming from changes in the fair value of cash flow hedges compared with a NZ$5.1 million profit from the same activity the previous year. PGG Wrightson Finance's 2010 net interest income rose almost NZ$10 million year-on-year to NZ$28.4 million.

The firm had total assets of NZ$549.6 million at June 30 last year and total liabilities of NZ$449.3 million. Building Society Holdings, or the proposed "Heartland Bank", has total assets of about NZ$2.2 billion.

Greenslade says Building Society Holdings, which aims to apply to the Reserve Bank for a banking licence in July, is also interested, generally, in acquiring other businesses that provide financial services to the rural sector, small and medium sized businesses, and families "sitting behind" those two sectors.

"We are aware that there are opportunities around without naming anything in particular and as things come up we’ll be keen to have a look," said Greenslade.

After the final stakeholder group voted in favour of the 'Heartland Bank' merger on December 10, the deal secured court approval on December 16 and was completed on January 7. Building Society Holdings listed on the sharemarket this week, has obtained a BBB- investment grade credit rating from Standard & Poor's and was accepted into the extended Crown retail deposit guarantee scheme, which runs until December 31 this year, by the Treasury.

The merger plan calls for Building Society Holdings to double its asset base within five years through growing lending to families, small businesses and the rural sector.

'Handful' of potential names on shortlist

Greenslade said there was now a shortlist with a "handful" of potential names for the Building Society Holdings, which is merely the group's initial operating name, on it. The plan was to operate under one umbrella brand and retain the Marac, CBS and Southern Cross brands underneath although their retention would be reviewed on a regular basis.

"We need to maximize the value of those brands where there is strong brand loyalty or product alignment with a particular brand. In my experience you can be foolish or rash to lose that value. But equally the balancing factor is the cost of maintaining brands can sometimes get quite high," said Greenslade.

Asked whether the Heartland name might ultimately be selected as the umbrella brand Greenslade said it hadn't been ruled out.

As for selling PGC's PGG Wrightson shares, Greenslade said strategically PGC had no business owning them.

"We are a financial services business (and) it became apparent to me that owning those shares was not aligned with where we’re heading as a group or the skill sets that we have and it made sense for us to exit."

As part of a broader review PGC is yet to decide what to do with subsidiary Perpetual Group, which includes the George Kerr chaired private equity firm Torchlight Investment Group. Asked if Perpetual too could be sold Greenslade said he wouldn't comment on options considered, but hoped to be in a position to "provide clarity" soon.

* This article was first published in our email for paid subscribers earlier today.  See here for more details and to subscribe.