Merger Robust Says Independent Report

An independent report has given a positive endorsement of the proposal to create a New Zealand listed banking and financial services group through the merger of MARAC, CBS Canterbury and Southern Cross Building Society.

The report co-authored by two investment banking firms - Cameron Partners and Northington Partners – will be mailed out to voting shareholders and investors in the merging entities next week as part of an information pack that also includes meeting and offer documents.

In their assessment of the merits of the merger Cameron Partners and Northington Partners concluded:

“The business case for the Merger appears robust, based on our assessment of Building Society Holdings Limited’s [the merged group’s] strategy and the Merger value drivers and risks; and

“The merits of the Merger for each of the Merging Entities relative to each Merging Entity’s standalone outlook appear compelling, and the basis on which the exchange ratio has been established is fair to the shareholders of each Merging Entity.”

The chairman of Building Society Holdings Limited (the merged group), Bruce Irvine, said: “The independent report is comprehensive and detailed and its findings provide valuable validation of the decision to pursue the merger.

“Each of the merging entities has undertaken extensive due diligence and evaluation and have concluded that the merger is value enhancing and compelling for all parties. This report has independently come to the same conclusion and it will be an important document for all voting stakeholders.”

Meetings to vote on the proposal will be held commencing November 22 with the merger expected to take effect on January 7, 2011. An NZX listing for the newly created financial services group is targeted for early February.

The independent report assessed the strategy developed by the Establishment Board, which was based around three strategic pillars:

o Scale: Creating a merged group that has a nationwide presence focused on servicing “heartland” New Zealand, and which establishes a broader shareholder base and capital structure to provide access to capital for growth;
o
o Competitive Positioning: Leveraging the existing regional strengths of the Merging Entities, a targeted receivables strategy (focusing particularly on small-to-medium businesses, rural businesses and “Middle New Zealand” individuals and families), and adopting a “customer first” rather than a product focused marketing approach; and
o
o Funding: Establishing the requisite characteristics for Combined Building Society to achieve an investment grade credit rating and to successfully obtain banking registration with the Reserve Bank of New Zealand. These initiatives will improve market credibility, provide greater certainty of funding and, as a result, lower the cost of funds.
o
Mr Irvine said an important conclusion in the independent report was that the business strategy for Building Society Holdings Limited (BSHL) was assessed to be “logical, coherent and robust”.

The independent report also assessed the risks associated with the proposed merger and concluded that “BSHL will be in a significantly enhanced position to manage these risks compared to each Merging Entity on a standalone basis.” It also considered that integration risk of merging the three entities was “manageable”.

According to the report the merger would deliver the following benefits to shareholders (when compared to the respective stand alone prospects of the merging parties):

o A stronger market position;
o
o Better opportunities for growth;
o
o Increased capabilities and enhanced systems and processes;
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o More secure access to funding, increased diversity of funds, and lower funding costs;
o
o Improved access to equity capital to support growth and absorb any external shocks;
o
o Increased liquidity in the shares issued by BSHL; and
o
o A general reduction in overall business risk.
o
The report also examined the methodology adopted for establishing the relative contributions to BSHL by the shareholders of each of the merging entities (and the shareholdings that will therefore exist following the Merger) and regard it as “practical and fair to the shareholders of each Merging Entity.”

In addition to the merits of the Merger for shareholders in each of the Merging Entities, the report also assessed the likely impact on depositors, debenture holders and other security holders (as applicable) in each Merging Entity, and concluded: “the effective priority position of each group of retail debt investors will not be disadvantaged as a result of the proposed Merger, assuming BSHL is successful in executing its business strategy in the short-medium term.”

ENDS

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