HGH - Heartland Group Holdings

[K1W1G0LD]

Amalgamation and possible Capital return to shareholders.

HNZ
06/11/2015 09:24
GENERAL
PRICE SENSITIVE
REL: 0924 HRS Heartland New Zealand Limited

GENERAL: HNZ: Heartland - Strategy Update

NZX Release

Heartland - Strategy Update

6 November 2015

Heartland New Zealand Limited (Heartland) (NZX: HNZ) advises its intention to
amalgamate with its wholly-owned subsidiary, Heartland Bank Limited
(Heartland Bank). Heartland also wishes to update the market in relation to
the previously advised proposal for Heartland Bank to issue Tier 2 capital
and for Heartland to subsequently return capital to shareholders.

Current Group Structure and Amalgamation Proposal

Heartland's current group structure is the product of the merger of three
separate financial institutions in 2011, the corporatisation of what was then
Heartland Building Society and a number of key business acquisitions
(including most recently the Seniors Finance acquisition). This has resulted
in an overly complex structure for a business of Heartland's size. For
example, as a registered bank, Heartland Bank is required to have a separate
board of directors, including additional independent directors, from its
parent, Heartland. This results in duplication and complexity, which is only
expected to increase as the group grows and choices need to be made as to
where assets are held within the group.

The boards of Heartland and Heartland Bank have therefore reviewed the group
structure with a view towards implementing a more efficient structure within
which the group can best achieve its objectives and which provides
transparency for its stakeholders. Accordingly, the boards of Heartland and
Heartland Bank have determined to merge those companies by way of a short
form amalgamation (Amalgamation). On Amalgamation, Heartland will continue
as the amalgamated company (Continuing Company) but will change its name from
"Heartland New Zealand Limited" to "Heartland Bank Limited". The
Amalgamation will take effect on 31 December 2015 (Effective Date).

As a result of the Amalgamation, all of Heartland's businesses currently
sitting outside of Heartland Bank will be brought into the banking group.
The most significant of these businesses is the Australian reverse mortgage
business, known as Heartland Seniors Finance. Other strategic investments,
such as Heartland's shareholdings in Harmoney Corp Limited and Ora HQ
Limited, as well as MARAC Insurance Limited, will also be brought into the
banking group.

The Reserve Bank of New Zealand (RBNZ) is not required to consent to the
Amalgamation, however we have notified them of it and are awaiting a formal
response from them. Fitch has recently affirmed Heartland Bank's long term
credit rating of BBB (outlook stable) and we do not believe that the
Amalgamation will affect that rating.

No shareholder approvals are required to effect the Amalgamation. However,
shareholders will be asked to vote on the appointment of directors to the new
board of the Continuing Company (which will be comprised of existing
directors of Heartland and Heartland Bank) and to amend the constitution of
the Continuing Company to reflect the Amalgamation at the upcoming Annual
Meeting. Further information on these resolutions will be provided in the
Notice of Meeting to shareholders for the Annual Meeting.

Issue of Tier 2 Capital Instrument

Heartland advised the market on 18 August 2015 of its intention for Heartland
Bank to issue a Tier 2 regulatory capital instrument (Tier 2 Capital) during
the financial year as part of its capital management strategy, subject to
market conditions remaining favourable.

Heartland's current intention is for the Continuing Company to proceed with
the issue of Tier 2 Capital in April 2016. At this stage, the indicative
issue amount is $50 million with up to $25 million of oversubscriptions. An
issue of Tier 2 Capital would improve the Continuing Company's capital
efficiency through diversification of the sources and types of capital
funding, and would mean that the Continuing Company's capital structure is
more closely aligned with that of other New Zealand registered banks.

No shareholder approvals would be required to effect the Tier 2 Capital
issue, though further information will be provided in the Notice of Meeting
to shareholders for the upcoming Annual Meeting.

Return of Capital

In the market announcement dated 18 August 2015, Heartland noted that a Tier
2 Capital issue could (in the absence of any other use) allow Heartland to
return excess capital to shareholders by way of a share buyback.

Heartland confirms that, following the Amalgamation and the Tier 2 Capital
issue, the Continuing Company will hold levels of regulatory capital in
excess of that required by RBNZ and in excess of Heartland's own internal
capital requirements (which provide for buffers above that required by RBNZ).

Whilst Heartland remains interested in acquiring Motor Trade Finances
Limited, there is currently insufficient certainty as to whether an
acquisition will proceed. In the absence of any other imminent
value-creating investment opportunity, the board's current view is that the
most appropriate use of the Continuing Company's excess capital is to return
it to shareholders.

The exact amount of excess capital to be returned to shareholders would
depend on the extent of oversubscriptions that may be received under the Tier
2 Capital issue and the business and economic factors present at the time the
capital return was conducted. Accordingly, Heartland will seek shareholder
approval at the upcoming Annual Meeting to return an amount of capital within
a range of not less than $58 million (which equates to 10% of Heartland's
average market capitalisation over the 20 trading days prior to this
announcement) and not more than $100 million.

However, circumstances may arise whereby the return of capital may not
proceed even if it is approved by shareholders. In summary, this would be if
the Tier 2 Capital issue did not proceed (or did not complete successfully)
or if the board identified an investment requirement or opportunity prior to
the return of capital being undertaken (including an acquisition of Motor
Trade Finances Limited), which leads the board to consider that a return of
capital is no longer the most appropriate use of the Continuing Company's
excess capital.

Method of Return of Capital

Heartland intends to conduct the return of capital by way of a Court-approved
scheme of arrangement (Arrangement). Under the Arrangement, a proportion of
each shareholder's shares would be cancelled and each shareholder would be
given a cash payment in return for the cancellation of those shares. The
board has determined that this would be the preferred method to return
capital due to the certainty of timing and quantum of return which it would
afford over other mechanisms. In addition, the Arrangement would be fair to
all shareholders as it would ensure the capital is returned on a pro rata
basis, leaving the relative voting and distribution rights of all
shareholders unaffected, subject only to rounding.

Heartland will shortly file an application with the High Court of New Zealand
seeking initial orders that, if granted, will allow the Arrangement to be
voted on by shareholders at the Annual Meeting on 11 December 2015. Inland
Revenue has confirmed that the Arrangement would not be a payment in lieu of
a dividend.

Further information in relation to the Tier 2 Capital issue and the
subsequent return of excess capital will be provided to shareholders in the
Notice of Meeting.

- Ends -

[Not too Flash]

C'mon Roger there MUST be something negative to say about this announcement ....

[mouse]

Percy was right!

[couta1]

Looks all solid stuff to me although I'm a bit green on the return of capital concept, I take it you get more cash than the value of your cancelled shares?

[nextbigthing]

Name change? Thats got to be worth 40cps?!

[Joshuatree]

Opening price re $1.27 plus 1 43,000 thru. Some digestion required.

[percy]

Another very positive announcement by HNZ.
A simpler structure will save time and money.
Bond issues are very popular at present and depending on terms I would expect HNZ's will be oversubscribed.So $75mil .
So we are in a win win situation.Buy MTF if it stacks up,and we increase eps.Walk away from MTF and do a larger share buy back which too will increase eps.
Couta1.No details yet,however you will be free to buy HNZ shares on market with the cash HNZ pays you for your "return of capital shares" HNZ brought from you. You end up with a bigger slice of the pie.
Mouse.You're onto it.!! lol.

[iceman]

I would have preferred on-market buyback But can't complain I suppose. Like the restructure of the setup as the 2 Boards/Companies setup was an unnecessary complication

[winner69]

Name change? Thats got to be worth 40cps?!

Well it looks like that might happen - share price rocketing ahead and on its way to that 40 cents

[iceman]

Mr Market likes the announcement :-)