By Nichola Saminather, Manya Saini and Niket Nishant
(Reuters) -Toronto-Dominion Bank Group said on Monday it will buy First Horizon (NYSE:FHN) Corp for $13.4 billion in cash to expand its footprint in the southeastern United States, as the Canadian lender bets on rapid population growth in the region with its record acquisition.
The deal is the culmination of a concerted hunt for U.S. acquisitions by TD, Canada's second-largest bank by market value, and follows unsuccessful bids for other U.S. assets in recent months.
TD will pay $25 for each First Horizon share, a 37% premium to the target's last close, funding the deal entirely with its excess capital, it said.
Shares of Memphis-based First Horizon jumped 20% to $23.78 in New York. TD shares fell 2.1% to C$102.50 ($80.82) in Toronto, versus a 0.55% decline in the Toronto stock benchmark.
The deal will make TD the sixth-largest U.S. bank, from No. 8, with about $614 billion in assets, operating in 22 states, the bank said. The populations in First Horizon's markets are expected to grow about 50% faster than the U.S. national average, offering growth opportunities, TD said.
"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," Barclays (LON:BARC) Analyst John Aiken said in a note.
The deal is TD's biggest ever, Aiken said.
Canada's top six lenders control about 90% of domestic banking operations, and they have been accelerating their expansion into the more fragmented U.S. market, helped by billions of dollars in excess capital. Bank of Montreal in December agreed to pay $16.3 billion for BNP Paribas (OTC:BNPQY)' U.S. unit.
SURPLUS CAPITAL
TD's core capital level after the deal will remain above the minimum set by the regulator, executives said. It had about C$21.6 billion of excess capital as of Oct. 31.
The deal comes amid a stream of tie-ups among midsized U.S. lenders in the last two years, seeking to build scale to better compete against the country's largest banks.
Southeastern regional lender BB&T Corp bought SunTrust Banks (NYSE:STI) in 2019 to create Truist Financial (NYSE:TFC) Corp in the biggest bank deal since the 2008 financial crisis. First Horizon itself bought Iberiabank (NASDAQ:IBKC_old) in 2020.
TD's acquisition will yield pretax cost savings of $610 million, as well as additional "meaningful" revenue synergies, executives said. TD, which expects merger and integration costs of $1.3 billion, has no plans to close any branches or to scale down any of First Horizon's existing businesses, they said.
Should the deal not close before Nov. 27, First Horizon shareholders will receive another 65 cents per share on an annualized basis until the closing date.
U.S. President Joe Biden's administration is pushing regulators, including the Federal Reserve, to take a tougher line on mergers amid worries that declining competition is hurting Americans.
"There have been instances where some deals have been slightly delayed," TD Chief Executive Bharat Masrani said on the call. "So (the additional payment) does compensate First Horizon shareholders should there be a delay."
Separately, smaller Canadian rival Bank of Nova Scotia said on Monday it will acquire Grupo Said's 16.8% stake in Scotiabank Chile for C$1.3 billion, increasing its ownership share to 99.8%.
(1 Canadian dollar = $0.7860)
(Reporting Nichola Saminather, Additional reporting by Manya Saini and Niket Nishant in Bengaluru and Jonathan Stempel in New York; Editing by Sriraj Kalluvila, Andrea Ricci and Jonathan Oatis)