ABS Canterbury and SMC Propose Merger
The terms of a merger have been conditionally agreed between the boards of directors of two long-established Canterbury
building societies, the listed ABS Canterbury and the SMC Building Society.
They are among the oldest financial institutions in Canterbury at 130 years and 123 years respectively.
A merger proposal will be placed before their respective members for approval early in the New Year.
The merger proposal has the unanimous support of both boards, the chairmen of both companies – Mr Graham Kennedy (ABS)
and Richard Calvert (SMC) – said today.
Members of SMC and ABS will be asked to consider and approve the merger proposal at separate special meetings in early
“The agreement to take the merger proposal to our respective members follows an amicable and careful negotiation that we
believe leads to a positive outcome for both businesses,” they said.
“Looking forward, both businesses can see the logic of pooling their existing customer bases in the pursuit of an
enhanced market presence. We are also motivated by the potential to build market share based on a strong Canterbury
identity and the personalised customer services that differentiate us within the traditional banking sector.”
“There are a substantial number of players in the financial services market after the past few years of rapid growth in
the economy and we believe the merger will sustain our competitiveness and position us to meet any future challenges.”
Under the proposal approved unanimously by both boards, the vehicle for the merger will be publicly listed ABS
Canterbury. The effective merger date is 1 April 2006.
SMC ‘Foundation’ and ‘New’ shareholders will either receive cash for their SMC shares or will become shareholders of ABS
Canterbury. The offer values ABS Canterbury shares at $4.20 each and SMC at $1.35 each.
To effect the merger:
ABS Canterbury will issue a mix of cash and new shares to those SMC Building Society members holding 400 or more SMC
Foundation and New Shares as at 3 April 2006. The formula, reflecting the valuations agreed by directors of the merging
societies, is 30c cash per SMC share plus 1 ABS Canterbury ordinary share for every 4 SMC shares.
Holders of less than 400 SMC Foundation and New Shares will receive a cash payment from ABS Canterbury of $1.35 for each
SMC share as at 3 April 2006.
ABS Canterbury shares issued to the holders of SMC Foundation and New Shares will fully participate in ABS Canterbury’s
interim dividend due for payment in September 2006 and currently forecast to be 7.5 cents per share fully imputed.
Members of both societies will be mailed a Formal Merger Proposal, in early February 2006, which will include an
Independent Appraisal Report prepared by PricewaterhouseCoopers assessing the fairness of the merger terms.
The SMC and ABS boards intend to recommend to their respective shareholders that they vote in favour of the merger
proposal. “We have a common heritage in Canterbury, and are now coming together in a friendly merger that we consider is
an appropriate way to achieve growth.”
The chairmen said that they have identified several synergy benefits that are likely to arise from an amalgamation.
Similar corporate cultures and operational structures under the Building Societies Act 1965 with a particular focus on
individual customers and small-to-medium sized businesses. The societies have a broadly similar Canterbury heritage, ABS
Canterbury commencing business in 1875 and SMC Building Society in 1882.
Increased breadth of operations with extended market opportunities for investment products. The merged business will
combine the range of financial products of both businesses and, without the cost of opening new branches, will have an
enlarged customer base extending across three existing locations:
ABS Canterbury’s Ashburton offices.
ABS Canterbury’s Riccarton offices.
SMC Building Society’s Sydenham offices.
Widened geographic diversity in the lending portfolio including residential, commercial and rural loans. The merged
entity will bring to ABS an immediately bigger presence in the Christchurch residential mortgage market, while SMC will
benefit from an increased capability to write larger loans.
Increased revenue and size of asset base. The projected March 2006 gross revenue for the merged entity is $24m. In 2006,
SMC is projected to contribute assets of $42.5m, which is just below an eighth of the projected merged total assets of
Increased profitability. The merger is projected to be earnings accretive in 2006, net of non-recurring amalgamation
A review of overhead expenses with anticipated significant cost reduction from 2006.
Market liquidity for investors through the NZAX listing of ABS Canterbury.
Opportunities for personal development of staff. All front-line staff will be retained in the merged business.
SMC Chairman, Richard Calvert, will join the board of the merged entity and a second SMC director will be invited to
join for a period of at least one year.
SMC chief executive Kyran Newell will oversee the amalgamation project on a short-term contract.
Each society has conducted due diligence on the other and the merger itself is not subject to any due diligence
conditions. The merger proposal will require the approval of the Securities Commission, the New Zealand Exchange and the
respective trustees (SMC- Perpetual Trust, ABS-Trustees Executors).
ABS Canterbury and its precursors have operated as a building society (‘Ashburton Building Society’) in Canterbury since
January 1875. Incorporated under the Building Societies Act 1965, the society operates under a Trust Deed administered
by Trustees Executors Ltd.
The society trades under the brand ABS Canterbury.
ABS Canterbury successfully listed on the NZAX market of the New Zealand Stock Exchange in July 2004.
During the ensuing year, issued ordinary capital was increased to $10.15m by the issue of 1,500,000 ordinary shares
subsequent to a pro rata issue of new ordinary shares at $2.60 per share in the ratio of 375 for every 1000 existing
ordinary shares. There are 5.5 million ordinary shares and 3 million preference shares on issue pre-merger. There will
be 6.545 million ordinary shares on issue post-merger.
ABS Canterbury provides financial and banking services to individuals, groups and organisations, rural and commercial
businesses. The primary emphasis is in providing first mortgage lending, secured against residential, commercial and
farming properties. A range of products are offered from ‘Kids’ cash’ on call savings accounts for clients under 12,
Everyday@Max on call cheque facilities for under 21s, and Everyday savings accounts to the ABS Canterbury Cashcard with
global access via ATMs.
ABS Canterbury funds its lending activities by public investment in a range of savings products.
With the strong support of depositors and borrowers, 2005 was the strongest trading year in the society’s history.
Income rose 30.9% to $17.58m and net surplus after tax rose 40.7% to $1.6m. The cost of funds reflected the strong
growth, with interest paid to deposits rising to $12.55m. Total advances increased 11.2% to $192.6m. Total assets stand
at $247.6m as at 31 March 2005.
The total ordinary dividend for the 2005 year is 14 cents per share, with an increase to 15 cents per share signalled
for 2006. Preference shares carried a 2005 dividend of 8 cents per share.
ABS Canterbury is a strong supporter of community activities, including school and youth activities, numerous sports,
and the Arts.
The Board of Directors (as at 1.12.05) comprises: Graham Kennedy (Chairman), Richard Ashford, Rodger Bradford, Donald
Church, Neville McFadden, John Moon and Nicola Wagner M.P.
BACKGROUND NOTES (Cont).
SMC BUILDING SOCIETY
SMC Building Society is one of the oldest remaining Christchurch financial institutions. It was founded in 1882 as the
Sydenham and Suburban Co-operative Money Club, which traded from premises on the corner of Liverpool & Cashel Streets.
The Money Club relocated to Sydenham in 1909 from where it has subsequently traded.
In 1988 the business constructed its current Sydenham premises in Colombo Street and focused on product development.
However, regulatory restraints stifled the growth of credit unions throughout the 1990s.
Following a Private Bill passed by Parliament on 11 October 2001 SMC registered as a building society on 2 April 2002,
leading to an expansion of its personal and small business banking services.
SMC Building Society has on issue Foundation Shares (issued on 2 April 2002 as a reward for customer loyalty by way of a
free distribution from reserves, and non-redeemable until April 2005) and New Shares issued at that time by way of paid
subscription. There are approximately 4,200 members of whom 2,058 are holders of Foundation or New Shares. For the
purposes of the merger with ABS Canterbury the Foundation and New Shares are ranked equally.
SMC provides a range of innovative financial services that includes a primary school passbook savings scheme, personal
savings products including term investments, small business banking services, foreign exchange and travel insurance. In
2004 SMC grew the term investment base by 16% to over $25m. SMC’s Access accounts are held by 3,200 members who require
frequent transactions using SMC’s ATM/EFTPOS card, Internet banking, Phone banking or cash. The Destination account
launched in 2004 for members who require a high return call account with infrequent transactions reached 1,200 accounts
Lending activity grew by 9% in 2004, taking total loans to members to $32.6m. The majority of lending activity is on
first mortgages secured against residential property.
Total income was $1.41m in the year ended 31 December 2004. The surplus before tax was $53,233 ($147,230) and the net
surplus after tax was $44,105 ($101,101). Total assets stood at $40.58m at 31 December 2004. Total dividends paid in
2004 on both Foundation and New Shares were 5 cents per share, unimputed.
SMC’s board of directors comprises Richard Calvert (chairman), Paul Rhodes, Bryan Mooar and Geoffrey Clark.