Home offers up to $243m for Police & Nurses

Home Building Society Ltd has today sent a detailed merger proposal to the Board of Police and Nurses Credit Society Limited, offering up to $243 million under two options - well below the $420 million mooted by the target.

Under the proposal, Home is offering PNCS Members up to $243 million as consideration for their Member shares - which values PNCS at 23 times net profit for its core financial services business plus market valuations of the property
development and other non-core assets.

Home is proposing an alternative scrip offer that would see PNCS Members receive $215 million in Home shares for their Member shares.

The offers are well below a valuation of at least $420 million, or $6,000 per member, produced by Police & Nurses earlier this month.

Home said both offers compare favourably with an independent valuation of PNCS that values
the society at between $156-225 million (see valuation explanatory note below).

Home believes that if the offer is presented to PNCS Members by their Board in a
timely manner, the merger could be completed by June 2007.

Home Chairman Tony Howarth said the merger proposal made sense for all parties
involved.

"Both Home and PNCS have strong positions in the WA market but their combined
force would give Western Australia a major new institution with over 180,000
customers that would really take it up to the big banks in terms of customer service
and strong local presence," said Mr Howarth.

"We are focused on creating a strong local alternative to the big banks. We are very
much prepared to pay fair value to the Members of PNCS and would like them to be
on board as we create this strong WA based organisation.

"The merger proposal allows the Members of PNCS to receive value for their
shareholding but retain the range of products and customer service they have
enjoyed for some years. In particular, they would have access to an additional 15
branches throughout Perth and Western Australia.

"As we did for StateWest, Home has committed to retaining current terms and
conditions for PNCS Members' products for at least two years. Furthermore, Home
has committed to a policy of no involuntary redundancies for customer facing staff.
Branch amalgamations would only occur where there is a direct suburb level
overlap."

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Mr Howarth said Home noted the $420m valuation released by PNCS on 1st
September and that PNCS has now increased this to $450m.

"Clearly there is a gap between this number and our offer," said Mr Howarth.

"The Members of PNCS will need assistance to understand just what the fair value of
their Society is. Home has taken the effort to request an independent valuation of
PNCS and we have released that independent valuation today.

"We encourage PNCS to do the same and provide their Members with a proper
independent valuation. We believe that is good corporate governance"

Home's offer to PNCS values the PNCS financial services business at 20 and 23
times after tax earnings for the scrip and cash offers respectively.

Home has asked the Board of PNCS for face-to-face discussions and negotiations to
advance this proposal.

"We believe we have structured a fair and attractive offer. The merits of the offer
should be determined by the Members of PNCS and we strongly believe they are
entitled to the opportunity to vote on it," said Mr Howarth.

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OFFER CONDITIONS

Home has indicated the following conditions apply to its proposed offer:

7 Both Home and PNCS enter into a Merger Implementation Agreement which
includes the terms and process on which the offer is to be put to the PNCS
Members;

7 A 75% majority of PNCS Board Members agree to provide an "accept"
recommendation to the PNCS Members for the Demutualisation and Scheme
together with supporting resolutions, subject to receipt of the Independent
Expert Report;

7 Completion of due diligence by Home in an agreed timeframe to the
satisfaction of the Home Board (to be reciprocated in the case of an all-scrip
based consideration);

7 Reaching agreement with PNCS on the appropriate number of Members to
be included in the offer and treatment of Members/Customers joining post
December 2005;

7 No Material Adverse Effect on the PNCS business or Prescribed Occurrence
during the offer period;

7 Requisite approvals from ASIC, APRA, the Scheme court, third party
consents and other regulatory bodies; and

7 Home shareholder approval.

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OFFER VALUATION

Home engaged Lonergan Edwards & Associates ("LEA"), a specialist valuation firm
based in Sydney, to independently value PNCS.

LEA has an established track record and substantial experience in company
valuations, including a significant number of valuation engagements for a number of
Credit Unions and Building Societies.

LEA has not had access to the management team at PNCS and has relied solely on
audited financial statements and other publicly available information. They have
provided an independent valuation of between $194m and $225m for PNCS on a
sale of business basis and a lower valuation of between $156m and $166m on a
stand alone IPO basis.

Home's scrip offer is towards the upper end of the LEA valuation range and the cash
offer is $18m above the top of the LEA valuation range.

Home has noted the PNCS/Ernst & Young $420m valuation released by PNCS on 1
September. Now, just three weeks later, this has been raised to $450m.

The PNCS/Ernst & Young valuation includes a multiple of 43 times the Financial
Services earnings, as disclosed in the PNCS FY06 Income Statements. It also
includes the valuation of PNCS's property assets and appears to ignore the debt
against some of these assets.

The Home-StateWest merger was agreed on the basis of a 17 times earnings
valuation for StateWest. The fact that the Home shares received by StateWest
Members are now worth considerably more than when the merger was agreed is
good news for StateWest Members but not relevant when considering the fair value
of PNCS.

Other relevant benchmarks are:

7 The Independent Expert valued the Financial Services component of
StateWest at 16 to 17 times after tax earnings in the StateWest
demutualisation document.

7 The LEA valuation represents 17 to 20 times after tax earnings after inclusion
of synergies for PNCS Members.

7 Regional banks in Australia are currently trading within a PE range of 12.6 to
18.8 times earnings.