Heartland shareholders approve $620 million TSB takeover to establish 'challenger bank', clearing the path for the deal to be completed pending final regulatory approvals and TSB liquidity report

Shareholders of Heartland Group Holdings have cast their votes and approved Heartland’s proposed takeover of TSB. 

Shareholders representing 58.09% of Heartland’s issued capital voted on the proposed transaction at Heartland's special shareholder meeting on Wednesday, with 94.80% of the votes cast in favour of the deal.

Heartland announced the results on Thursday morning.

As a dual-listed company on both the New Zealand Stock Exchange (NZX) and the Australian Securities Exchange (ASX), Heartland had to obtain shareholder approval for the proposed deal on the following four resolutions relating to the takeover:

• Resolution 1: The proposed acquisition by Heartland of all TSB shares on issue from its parent, the Toi Foundation, and the subsequent merger of Heartland Bank and TSB. At $620 million, the gross value of the proposed takeover is more than 50% of Heartland’s $1.037 billion average market capitalisation, according to Heartland.
• Resolution 2: The issue of 200 million Heartland shares to Toi Foundation as part of the consideration for the Proposed Transaction. These are fully paid ordinary shares to Toi Foundation at an issue price of NZ$1.25 per share.
• Resolution 3: The appointment of a Toi Foundation nominee (Mark Darrow, current Chair of the TSB board of directors) to the Heartland Board. Toi nominated Mark Darrow, who has been the chair of TSB since January 2022. 
• Resolution 4: An increase to Heartland's annual fee pool available for director remuneration. Heartland’s board 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 shareholders approved all four resolutions, which Heartland Group Holdings chief executive Andrew Dixson said reflected confidence in Heartland's ability to deliver the merger successfully.

“Yesterday’s approval is a strong endorsement from our shareholders of the strategic rationale for this transaction and the long-term value it is expected to create. It marks an important milestone towards bringing together two complementary banks to create a larger, more competitive New Zealand bank, with greater capacity to invest in future growth. We are grateful for the support shareholders have shown and will now focus on satisfying the remaining conditions and progressing towards completion,” Dixson said.

Heartland reported the voting results for each resolution as follows:

• Resolution 1 (special resolution; required 75% approval): Passed with 520,505,170 votes in favour (94.80%) to 28,556,745 against (5.20%).
• Resolution 2 (standard resolution; required 50% approval): Passed with 514,602,454 votes in favour (94.71%) to 28,732,760 against (5.29%).
• Resolution 3 (standard resolution; required 50% approval): Passed with 534,960,799 votes in favour (98.10%) to 10,359,742 against (1.90%).
• Resolution 4 (standard resolution; required 50% approval): Passed with 428,159,233 votes in favour (97.27%) to 12,012,902 against (2.73%).

NZ’s seventh-largest bank

Heartland and TSB are continuing to gun for deal completion by the end of this year, in December. Along with approval from Heartland shareholders as of Thursday, October 1, the deal also secured Toi Foundation trustee approval in August.

The deal still needs necessary regulatory approvals. Heartland submitted its Reserve Bank (RBNZ) consent application for the proposed transaction on August 31.

If the takeover goes ahead, TSB Heartland Bank would be NZ’s seventh-largest bank. Heartland Bank is currently NZ’s ninth-largest bank by total assets, and TSB is seventh.

Heartland told shareholders on Wednesday that TSB Heartland Bank would be a full-service bank offering specialist products and a broad funding mix, creating a “significant New Zealand challenger bank of scale.”

Each bank provides different financial products. Heartland Bank offers motor finance, reverse mortgages, rural lending, business finance, savings accounts and deposits. TSB offers savings accounts, home loans, deposits, commercial property finance and personal lending. Heartland is particularly keen on TSB’s home loan book, which stood at $6.5 billion as of June 30.

Without adjusting for any potential common customers across Heartland and TSB, Heartland has estimated that the combined entity will have 320,000 customers.

Following completion of the deal, the Toi Foundation would acquire a 17.5% shareholding in Heartland Group. One Toi Foundation nominee (Mark Darrow) would be appointed to the Heartland Group board and two existing TSB directors would join the TSB Heartland Bank board.

Toi Foundation has owned 100% of TSB since Toi was established as a charitable trust in 1988. The foundation also holds a 66% shareholding in investment manager and KiwiSaver provider Fisher Funds.

A potential curveball was thrown into the proposed deal last week when the Reserve Bank announced 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, with a final report due to the RBNZ in November.

TSB said the review would provide an additional level of independent assurance as it prepared for the proposed merger with Heartland. Meanwhile, Heartland told the market last week it would consider any implications for the proposed transaction as the review progressed.

Heartland was asked to comment on the report at its special shareholder meeting yesterday, but the bank declined, saying the report wasn’t related to Heartland.