TD Bank will acquire First Horizon, a regional bank in the southeastern U.S with roughly $89 billion of assets, for $13.4 billion in cash, or $25 per share. However, if the transaction does not close before Nov. 27, First Horizon shareholders will get an additional $0.65 per share on an annualized basis for the period from Nov. 27 until the day before the deal closes. This clause might have something to do with the fact that the Federal Reserve has been slow to approve bank deals in recent months.
The acquisition will grow TD Bank's U.S. operations to $614 billion in total assets, making it the sixth-largest bank in the U.S. It will provide immediate scale to TD in Louisiana and Tennessee while filling in holes in the bank's existing footprint in Florida and the Carolinas. It also grows TD's commercial loan book to $128 billion.
The deal is expected to boost TD's earnings by about 10% in 2023 based on its plans to eliminate about 33% of First Horizon's expense base.
The announcement of the deal did surprise me because First Horizon completed a big acquisition of its own in 2020 when it acquired IberiaBank, a deal that was viewed as a merger of equals.
But TD Bank has been on the hunt for an acquisition in the U.S. for some time and is offering a nice price to First Horizon shareholders. The deal values First Horizon at 210% tangible book value, which is what a bank would be worth if it were liquidated.
Not only is that a very solid valuation for a U.S. regional bank, but First Horizon only traded at about 166% tangible book value on Friday, so I think it's a good deal for shareholders.