Key Points:

NZAX-listed companies Canterbury Building Society (CBS) and the Loan and Building Society (LBS) have agreed to merge, the companies said today.

LBS will make a one-for-10 fully imputed taxable bonus issue of 400,000 new shares during November 2007 to increase its share holding to 4.4 million. These new shares will receive a dividend.

LBS shareholders will then receive one CBS share for each LBS share.

The terms of the merger are subject to independent appraisal as required by NZX listing rules.

CBS has been selected as the continuing entity because it is the most appropriate choice for logistical, administrative, accounting and tax reasons, the companies said.

"Subject to approval of shareholders of both LBS and CBS Canterbury, the merger will create a significantly enlarged business of considerable financial strength," CBS chairman Graham Kennedy said.

The combined society will have aggregate total assets of approximately $530 million.

Southern Cross Building Society has 13 per cent of CBS and 9 per cent of LBS and will become the largest shareholder of the merged entity.

"The merger will create an opportunity to expand the combined businesses of both existing entities, as well as providing a strong base to meet any new regulatory requirement that emerge from the Government's current review of the financial markets," they said.

The combined entity will continue the present focus on the first mortgage lending market, with offices in Ashburton, Christchurch and Rangiora also offering banking services including savings and cheque accounts, eftpos and A" transactions, internet banking and business banking.

CBS will continue to be listed on the NZAX. Its shares last traded at $5.60 and LBS shares last traded at $5.43

Grant Samuel & Associates Ltd has been appointed as independent appraiser for LBS and PricewaterhouseCoopers for CBS.

It was intended to call separate meetings of shareholders of LBS and CBS in December 2007 to vote on the proposal.