Toronto-Dominion Bank Group (TD), a major player in the Canadian financial landscape, has unveiled its ambitious plan to acquire First Horizon Corp for a staggering $13.4 billion in cash. This bold move comes as part of TD’s strategic expansion into the southeastern United States, as the bank seeks to capitalize on the region’s anticipated rapid population growth. The acquisition is set to reinforce TD’s position in the U.S. market and underscores its commitment to growth and strategic expansion.
This significant deal marks the culmination of TD’s concerted efforts to pursue acquisitions in the U.S., which aligns with the bank’s broader strategy to extend its reach and capitalize on emerging opportunities. The move follows several unsuccessful bids for other U.S. assets in recent months, underlining TD’s determination to find the right fit for its growth ambitions.
The acquisition terms entail TD paying $25 for each share of First Horizon, a considerable 37% premium over the target company’s last closing price. TD intends to finance the acquisition entirely using its excess capital, a testament to the bank’s robust financial position and strategic foresight. The news of this acquisition sent ripples through the market, leading to a 20% surge in First Horizon’s stock price, which reached $23.78 in New York. However, TD’s own shares experienced a modest dip of 2.1%, settling at C$102.50 ($80.82) in Toronto.
This acquisition is expected to catapult TD to the sixth-largest U.S. bank, up from its current eighth position. With a portfolio of approximately $614 billion in assets, the bank will establish a significant presence across 22 states. TD’s interest in First Horizon’s markets is rooted in the projection that population growth in these regions will outpace the U.S. national average by approximately 50%. This demographic trend aligns well with TD’s growth-oriented strategy, creating a favorable environment for expansion and increased market share.
Experts have been quick to highlight the strategic value of this deal for TD. Barclays Analyst John Aiken commented on the transaction’s positive implications, stating, “We are positive on the transaction as it not only deploys TD’s significant excess capital profitably but also infills its southeastern platform and extends around the Gulf Coast.” This assessment underscores the benefits that TD envisions by strategically positioning itself in regions poised for growth. Additionally, Aiken pointed out that this acquisition represents TD’s largest deal to date, underscoring the significance of the move.
Canada’s largest lenders have long dominated the domestic banking landscape, with the top six institutions controlling about 90% of domestic banking operations. In recent years, these banks have accelerated their expansion into the fragmented U.S. market, aided by substantial amounts of excess capital. This trend is reflected in Bank of Montreal’s December agreement to acquire BNP Paribas’ U.S. unit for $16.3 billion.
An important aspect of this deal is TD’s commitment to maintaining its core capital level above the minimum set by regulatory authorities. Executives at TD reassured stakeholders that the acquisition would not compromise the bank’s regulatory capital requirements. As of October 31, TD held an impressive C$21.6 billion in excess capital, further solidifying its financial position.
TD’s move to acquire First Horizon comes amid a wave of consolidation among mid-sized U.S. lenders over the past couple of years. These institutions have been seeking to achieve greater scale, enabling them to better compete against larger banks. Notable examples of this trend include Southeastern regional lender BB&T Corp’s acquisition of SunTrust Banks, which culminated in the formation of Truist Financial Corp, the most significant bank deal since the 2008 financial crisis. Additionally, First Horizon itself made a strategic acquisition by purchasing Iberiabank in 2020.
A pivotal aspect of the acquisition is its potential to yield significant cost savings for TD. The deal is projected to result in pretax cost savings of $610 million, further enhancing the financial benefits of the transaction. In addition to these cost savings, executives anticipate the realization of “meaningful” revenue synergies, which could contribute to the overall success of the deal. While TD anticipates incurring merger and integration costs of $1.3 billion, the bank has stated that it has no intentions to close any branches or downsize First Horizon’s existing businesses.
Furthermore, the deal’s terms include a provision for an additional payment to First Horizon shareholders if the acquisition does not conclude before November 27. This clause is intended to compensate shareholders for potential delays and underscores TD’s commitment to honoring its agreements.
It’s noteworthy that the U.S. administration, led by President Joe Biden, has been advocating for stricter regulations on mergers, particularly to address concerns regarding declining competition. The Federal Reserve, among other regulatory bodies, has been urged to take a more robust approach to mergers. TD’s CEO, Bharat Masrani, addressed potential regulatory considerations, noting, “There have been instances where some deals have been slightly delayed… So (the additional payment) does compensate First Horizon shareholders should there be a delay.”
In a separate announcement, another Canadian bank, Bank of Nova Scotia, unveiled its own strategic move. The bank disclosed its intent to acquire Grupo Said’s 16.8% stake in Scotiabank Chile for C$1.3 billion. This transaction will increase Bank of Nova Scotia’s ownership share to an impressive 99.8%, reflecting the bank’s ongoing efforts to strategically enhance its global presence.
In conclusion, Toronto-Dominion Bank Group’s acquisition of First Horizon Corp represents a pivotal step in the bank’s strategic expansion plans. The acquisition not only bolsters TD’s U.S. market presence but also showcases the bank’s commitment to seizing growth
opportunities in regions poised for substantial demographic expansion. TD’s strategic move aligns with its broader strategy to expand its reach, and the acquisition’s terms reflect the bank’s strong financial position. While navigating potential regulatory considerations, TD’s acquisition of First Horizon positions the bank to capitalize on emerging opportunities and extend its influence in the southeastern U.S. region.
