Toronto Dominion Bank has agreed to buy out First Horizon Corp in a $13.4 billion deal, the largest ever. The Canadian Bank uses its massive stockpile of capital for the acquisition that will expand its presence in the U.S. Southeast.
As per Bloomberg News, TD will pay $25 per share in cash for First Horizon. The Tennessee-based First horizon purchase price was 37% higher than its closing price on Friday.
This deal is part of TD Bank’s growth pattern in the U.S through acquisitions and the largest takeover and boldest move by CEO Bharat Masrani since he took over in 2014. Masrani had been saying since the past one year that the lender would put extra capital in a significant U.S. deal if the right opportunity came along.
First Horizon has 412 branches across 12 states in the U.S. and 1.1 million-plus retail and corporate customers. It has leading positions in Louisiana and Tennessee, a significant presence in Carolinas, Virginia, and Florida.
The move would give a footprint to TD beyond East Coast and provide extra mileage in markets like Florida. This deal will catapult Toronto Dominion Bank into the U.S. top six banks with $414 billion assets.
Buying Scale
TD will add capabilities to its commercial banking and scale up its trading and fixed income sales after this deal. The share price of First Horizon surged 30% to $23.75 in New York, while TD slipped 1.2% to C$ 103.44 in Toronto.
Toronto Dominion bank will not close any of the First Horizon branches. It will retain the bulk of the employees, including CEO Bryan Jordan, who will join TD as Vice Chairman and report to Masrani.
This deal will help Toronto Dominion use its capital built after the Canadian regulators prevented the Nation’s Banks from buying back shares or increasing dividends during an early pandemic. TD has about C$21.5 billion excess Tier1 capital at the end of the fourth quarter.
According to Bloomberg Intelligence, First Horizon’s $13.4 billion sales to TD Bank appears shareholder-friendly at 2.3 times the book value and 14.5 times the 2023 EPS. This deal is apt for the First horizon operating model that stresses profitability and maximizing shareholders’ value.
On Monday, TD announced that it would terminate its automatic share buyback plan. According to analyst John Aiken of
Plc., the transaction is positive as it allows TD to use its surplus capital profitably, fill the southeastern region and extend to the gulf coast.
Regulators blocked Bank mergers in Canada’s highly concentrated banking sector, leading TD to look south for expansion. TD bought out Banknorth Group Inc. in 2005 with a 51 % stake giving it a presence in U.S. Northeast consumer banking in 400 branches in six states.
The First Horizon- TD deal is expected to materialize in fiscal 2023, starting in November.
