AUCKLAND: Heartland Group Holdings (NZX/ASX: HGH) has signed a conditional merger implementation agreement with Toi Foundation to merge Heartland Bank and TSB Bank, creating a new challenger bank with a regional focus and nationwide presence.
Under the proposed transaction, Heartland will acquire all TSB shares for a total consideration of $620 million. Following the acquisition, the two banks will merge via a short-form amalgamation to form TSB Heartland Bank Limited.
Transaction Details
The aggregate consideration represents 76% of TSB’s book value as at 31 December 2025 and comprises:
– $250 million in ordinary equity – 200 million Heartland shares issued at $1.25 per share (a 14.6% premium to the 10-day VWAP), giving Toi Foundation a 17.5% stake in Heartland post-completion
– $56 million in subordinated debt – issued by Heartland Bank as RBNZ‑eligible Tier 2 capital
– $264 million vendor loan – provided by Toi Foundation to Heartland with a two‑year term (refinanceable without break fees)
– Plus a $50 million pre‑completion cash dividend from TSB to Toi Foundation
The merged entity will become New Zealand’s seventh largest bank, with approximately $15 billion in total New Zealand assets – a 171% increase in Heartland’s domestic asset base. The combination brings together:
– Heartland Bank’s specialist product expertise (Motor Finance, Reverse Mortgages, Rural and Business Finance)
– TSB’s cost‑effective funding platform and established transactional banking capabilities
TSB Heartland Bank is designed as a full‑service capable bank differentiated by its specialist offerings, with a lower risk‑weighted product portfolio. The merger is expected to increase banking competition and choice for New Zealanders.
Financial Outlook
Management estimates annual pre‑tax cost synergies of approximately $34 million, to be progressively realised over three years post‑completion by reducing duplicated activities, processes and shared overheads. Total one‑off integration costs are estimated at roughly $34 million over the same period.
The transaction is expected to generate material normalised EPS accretion in excess of 20% in the first year post‑completion (including full run‑rate synergies), alongside an enhanced dividend per share profile.
The implied valuation metrics for TSB are:
– 0.76x book value
– 12.1x last‑twelve‑months NPAT (excluding synergies)
– 8.2x LTM NPAT including full synergies
Toi Foundation will become a long‑term, supportive 17.5% shareholder in Heartland. Subject to shareholder approval, one Toi Foundation nominee is expected to join the Heartland Board, while two existing TSB directors will initially join the TSB Heartland Bank Board.
Reflecting each bank’s community roots – Heartland traces its history to Ashburton in 1875, while TSB celebrated its 175th anniversary in 2025 – the merged bank will retain Heartland’s existing nationwide presence, with Taranaki as a key operational hub for customer‑based services, including maintaining a local branch network and customer‑facing roles in the region.
Completion is targeted for December 2026, subject to:
– Community consultation by Toi Foundation with Taranaki residents (June–July 2026)
– Heartland shareholder approval (meeting expected August 2026)
– Necessary regulatory approvals from the RBNZ, FMA, APRA and other agencies
– Confirmatory due diligence and warranty & indemnity insurance being obtained
– Fitch reaffirming a long‑term rating of at least BBB (stable) for the merged bank
Each party may terminate the MIA if conditions are not satisfied or waived by 1 March 2027.
Heartland states it will remain well capitalised post‑transaction, with both TSB Heartland Bank and Heartland Bank Australia maintaining strong regulatory capital positions. No ordinary equity issuances are expected to meet future capital requirements.
The proposed merger may support an uplift in the merged bank’s long‑term credit rating compared with Heartland Bank’s current BBB stable (Fitch), reflecting strengthened asset quality and a lower risk‑weighted product profile.
Total transaction costs are estimated at approximately $15 million, with about $7 million expensed in FY2026 and $8 million in FY2027 (subject to completion timing).
Heartland is advised by Jarden (sole financial adviser), Chapman Tripp (legal and tax), Deloitte (financial and technology due diligence) and EY (independent synergy assessment).
