The Toronto-Dominion Bank ( TD Quick Quote TD - Free Report) entered an agreement to acquire Cowen Inc. ( COWN Quick Quote COWN - Free Report) in an all-cash deal worth $1.3 billion or $39 for each share of Cowen’s common stock. The closing of the deal, subject to customary closing conditions, including approvals from Cowen’s shareholders and certain U.S., Canadian, and foreign regulatory authorities, is expected in the first quarter of 2023. Following the deal announcement, shares of TD gained 1.5%. Through the deal, Toronto-Dominion's subsidiary, TD Securities, will accelerate its long-term growth strategy in the United States by acquiring a high-quality and rapidly growing investment bank with outstanding talent, and highly complementary products and services. The combined firms’ pro-forma global revenues are expected to increase by more than a third to C$6.8 billion, with added advisory, capital markets, equity execution and industry-leading research capabilities and broadened expertise in key growth sectors. Following the closing of the transaction, TD Securities’ existing depth and breadth in global market research capabilities will benefit from COWN’s complementary and highly diverse equity research franchise. Deal Details & Financial Impact
In relation to the deal, Toronto-Dominion sold 28.4 million non-voting common shares of
The Charles Schwab Corporation ( SCHW Quick Quote SCHW - Free Report) for $1.9 billion. This reduced TD’s ownership interest in Schwab from 13.4% to 12%. Notably, TD’s strategy with respect to its investment in SCHW has not changed and it has no current intention to divest additional shares. When combined with the share sale, the acquisition of Cowen is expected to be neutral to Toronto-Dominion’s common equity tier 1 ratio, which is expected to be above 11% at closing. Moreover, the deal is expected to be modestly accretive to TD’s 2023 adjusted earnings per share on a fully-synergized basis. Also, it will generate approximately 14% adjusted return on invested capital on a fully-synergized run-rate basis. The purchase price represents a 1.7 times multiple of Cowen’s tangible book value as of Mar 31, 2022, and 8.1 times multiple of Cowen’s 2023 expected earnings. Toronto-Dominion expects to achieve $300-$350 million in revenue synergies by year three. Total pre-tax integration and retention costs of $450 million are anticipated to be incurred over three years. Management Comments
Bharat Masrani, group president and CEO of TD Bank Group, stated, “Cowen is a leading independent dealer with a premier U.S. equities business and a strong, diversified investment bank that, when combined with TD Securities, will allow us to accelerate our strategic U.S. growth plans. Most importantly, the acquisition will provide new capabilities and increased depth in key business lines to meet our clients' needs and will allow us to leverage our combined expertise, talent, and integrated offerings across a much larger client base.”
Jeffrey Solomon, the chairman & CEO of Cowen, said, “At Cowen our success comes from striving to outperform in all we do by exceeding expectations and providing innovative solutions to, and partnering with, our clients. Taking this step will make us even stronger and more effective in serving their growing needs. The strategic decisions and focused investments that we have made over the last few years have positioned Cowen for this exciting next chapter of our growth. I look forward to having our exceptional talent and valued clients join the TD family.” In the past year, shares of TD have lost 2.5% and COWN’s share price has declined 3.1%.
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Currently, Toronto-Dominion carries a Zacks Rank #3 (Hold), while Cowen has a Zacks Rank #4 (Sell).
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