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First Horizon (FHN) Up on $13.4B Buyout Announcement by TD Bank
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First Horizon Corporation (FHN - Free Report) and TD Bank Group (TD - Free Report) signed a definitive agreement for TD to acquire FHN in an all-cash transaction valued at $13.4 billion, or $25 for each FHN common share.
This represents a premium of 37% to FHN’s closing price on Friday, before the deal was unveiled. Owing to the financially compelling transaction, shares of FHN rallied around 29% in yesterday’s trading hours.
TD anticipates the FHN acquisition to close by Nov 1, nine months following the deal announcement. The acquisition is subject to customary closing conditions, including approvals from First Horizon's shareholders, and U.S. and Canada regulatory authorities.
For any delay in deal closure post Nov 27, 2022, First Horizon shareholders will receive additional 65 cents per share, on an annualized basis, for the period from Nov 27, 2022, through the day prior to the closing. Also, if the deal does not close by Feb 27, 2023, the transaction will be terminated.
Per FHN management, "We have built a very strong business at First Horizon, and by joining forces with TD, we will create extraordinary value for our key stakeholders with a shared customer-centric strategy, enhanced scale and a broader product set for our clients. This is a true growth story,"
Deal Rationale
The deal underlines TD’s long-term growth strategy in the United States and will foster the company’s Southeast footprint expansion in South Carolina and Florida, while providing entry into Tennessee, Louisiana, Texas, Alabama, and Georgia. Collectively, the population in First Horizon's markets is expected to advance 50% faster than the U.S. national average. This offers significant growth opportunities for TD.
Per TD management, "The Southeastern U.S. represents a tremendous opportunity for TD and the addition of First Horizon's commercial and specialty banking capabilities will position us as a leading national player in commercial banking. We will combine our resources and capabilities and continue to invest in the region as we focus on delivering the most differentiated banking experience in our markets."
Based on First Horizon's 2021-end balance sheet, the acquisition is projected to add $55 billion of loans and $75 billion of deposits to TD's balance sheet. TD is also expected to take a credit mark at close of $880 million, or 161 basis points of loans.
With this, on a pro-forma basis, excluding merger adjustments, the acquisition of First Horizon will make TD's U.S. franchise — TD Group US Holdings — a top 6 bank in the United States, with around $614 billion in assets and a network of 1,560 stores across a 22-state footprint. Globally the buyout scales TD Bank’s assets to C$1,841 billion, with more than 2,600 branches.
Financial Benefits
The transaction is expected to be immediately accretive at closing to TD's adjusted earnings per share (EPS) and more than 10% accretive to fiscal 2023 adjusted EPS on a fully-synergized basis. The transaction is anticipated to result in a fully-synergized return on invested capital of 10% in fiscal 2023.
On the back of technology and systems consolidation, and other operational efficiencies, TD expects to achieve nearly $610 million in pre-tax cost synergies, equivalent to 33% of First Horizon's 2023 expected non-interest expenses. However, total merger and integration costs of $1.3 billion are expected primarily in the first two years following the deal closure.
The transaction will be funded using excess capital on TD’s balance sheet. This underlines its robust capital and liquidity position. Despite the deal, the company’s Common Equity Tier 1 ratio is expected to be more than 11%.
Our Take
FHN has greatly diversified its product offerings, and strengthened its banking franchise in the Carolina and Florida markets on the back of inorganic growth moves. In July 2020, the company merged with IBERIABANK Corporation. This has likely increased its buyout appeal and enabled FHN to snap up the deal at an impressive premium.
TD has agreed to invest $494 million in non-voting First Horizon preferred stock to aid the latter’s growth and franchise enhancement. In addition, upon closing, TD will contribute $40 million to a First Horizon foundation. Amid the stringent regulatory environment for bank mergers, the commitment to local communities will perhaps be looked upon favorably by regulators.
However, as FHN rallied to end the last trading session at $23.48, a little lower than the $25 offered by TD, there is limited upside to the FHN stock.
Over the past six months, shares of FHN have rallied 40.8% compared with 9.4% growth of the industry.
Image Source: Zacks Investment Research
Competitive Landscape
Of late, regulators have come under pressure to toughen merger-approval processes after President Biden issued an executive order in July 2021, directing regulators to make adjustments to the bank merger review process in an effort to promote more competition in financial services and other sectors.
Escalating political and regulatory scrutiny of large bank mergers and acquisitions might result in higher execution risk for future deals. But this is not discouraging banks from consolidation activities.
Last week, Citizens Financial Group, Inc. (CFG - Free Report) closed the acquisition of 80 East Coast branches and the national online deposit business from HSBC Bank U.S.A., N.A. on Feb 18. The acquisition, which was announced in May, expands Citizens Financial’s physical footprint in numerous strategic markets, including New York, and adds more than 800,000 customer accounts.
Also, in July 2021, CFG announced a definitive agreement to acquire InvestorsBancorp in a bid to strengthen its banking franchise and boost the consumer customer base. The deal will mark Citizens Financial’s entry into the New Jersey market and position it at the seventh place by deposits. Post the deal completion, the acquisition will add $21.7 billion in loans, $20 billion in deposits, and a network of 154 branches in New Jersey, New York City and Philadelphia metro. The buyout is yet to receive regulatory approvals.
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First Horizon (FHN) Up on $13.4B Buyout Announcement by TD Bank
First Horizon Corporation (FHN - Free Report) and TD Bank Group (TD - Free Report) signed a definitive agreement for TD to acquire FHN in an all-cash transaction valued at $13.4 billion, or $25 for each FHN common share.
This represents a premium of 37% to FHN’s closing price on Friday, before the deal was unveiled. Owing to the financially compelling transaction, shares of FHN rallied around 29% in yesterday’s trading hours.
TD anticipates the FHN acquisition to close by Nov 1, nine months following the deal announcement. The acquisition is subject to customary closing conditions, including approvals from First Horizon's shareholders, and U.S. and Canada regulatory authorities.
For any delay in deal closure post Nov 27, 2022, First Horizon shareholders will receive additional 65 cents per share, on an annualized basis, for the period from Nov 27, 2022, through the day prior to the closing. Also, if the deal does not close by Feb 27, 2023, the transaction will be terminated.
Per FHN management, "We have built a very strong business at First Horizon, and by joining forces with TD, we will create extraordinary value for our key stakeholders with a shared customer-centric strategy, enhanced scale and a broader product set for our clients. This is a true growth story,"
Deal Rationale
The deal underlines TD’s long-term growth strategy in the United States and will foster the company’s Southeast footprint expansion in South Carolina and Florida, while providing entry into Tennessee, Louisiana, Texas, Alabama, and Georgia. Collectively, the population in First Horizon's markets is expected to advance 50% faster than the U.S. national average. This offers significant growth opportunities for TD.
Per TD management, "The Southeastern U.S. represents a tremendous opportunity for TD and the addition of First Horizon's commercial and specialty banking capabilities will position us as a leading national player in commercial banking. We will combine our resources and capabilities and continue to invest in the region as we focus on delivering the most differentiated banking experience in our markets."
Based on First Horizon's 2021-end balance sheet, the acquisition is projected to add $55 billion of loans and $75 billion of deposits to TD's balance sheet. TD is also expected to take a credit mark at close of $880 million, or 161 basis points of loans.
With this, on a pro-forma basis, excluding merger adjustments, the acquisition of First Horizon will make TD's U.S. franchise — TD Group US Holdings — a top 6 bank in the United States, with around $614 billion in assets and a network of 1,560 stores across a 22-state footprint. Globally the buyout scales TD Bank’s assets to C$1,841 billion, with more than 2,600 branches.
Financial Benefits
The transaction is expected to be immediately accretive at closing to TD's adjusted earnings per share (EPS) and more than 10% accretive to fiscal 2023 adjusted EPS on a fully-synergized basis. The transaction is anticipated to result in a fully-synergized return on invested capital of 10% in fiscal 2023.
On the back of technology and systems consolidation, and other operational efficiencies, TD expects to achieve nearly $610 million in pre-tax cost synergies, equivalent to 33% of First Horizon's 2023 expected non-interest expenses. However, total merger and integration costs of $1.3 billion are expected primarily in the first two years following the deal closure.
The transaction will be funded using excess capital on TD’s balance sheet. This underlines its robust capital and liquidity position. Despite the deal, the company’s Common Equity Tier 1 ratio is expected to be more than 11%.
Our Take
FHN has greatly diversified its product offerings, and strengthened its banking franchise in the Carolina and Florida markets on the back of inorganic growth moves. In July 2020, the company merged with IBERIABANK Corporation. This has likely increased its buyout appeal and enabled FHN to snap up the deal at an impressive premium.
TD has agreed to invest $494 million in non-voting First Horizon preferred stock to aid the latter’s growth and franchise enhancement. In addition, upon closing, TD will contribute $40 million to a First Horizon foundation. Amid the stringent regulatory environment for bank mergers, the commitment to local communities will perhaps be looked upon favorably by regulators.
However, as FHN rallied to end the last trading session at $23.48, a little lower than the $25 offered by TD, there is limited upside to the FHN stock.
Over the past six months, shares of FHN have rallied 40.8% compared with 9.4% growth of the industry.
Image Source: Zacks Investment Research
Competitive Landscape
Of late, regulators have come under pressure to toughen merger-approval processes after President Biden issued an executive order in July 2021, directing regulators to make adjustments to the bank merger review process in an effort to promote more competition in financial services and other sectors.
Escalating political and regulatory scrutiny of large bank mergers and acquisitions might result in higher execution risk for future deals. But this is not discouraging banks from consolidation activities.
Last week, Citizens Financial Group, Inc. (CFG - Free Report) closed the acquisition of 80 East Coast branches and the national online deposit business from HSBC Bank U.S.A., N.A. on Feb 18. The acquisition, which was announced in May, expands Citizens Financial’s physical footprint in numerous strategic markets, including New York, and adds more than 800,000 customer accounts.
Also, in July 2021, CFG announced a definitive agreement to acquire Investors Bancorp in a bid to strengthen its banking franchise and boost the consumer customer base. The deal will mark Citizens Financial’s entry into the New Jersey market and position it at the seventh place by deposits. Post the deal completion, the acquisition will add $21.7 billion in loans, $20 billion in deposits, and a network of 154 branches in New Jersey, New York City and Philadelphia metro. The buyout is yet to receive regulatory approvals.