TD Bank Group to acquire First Horizon in $13.4B all-cash deal

TD Bank Group and Memphis, Tenn.-based First Horizon Corp. have signed a definitive agreement for TD to acquire First Horizon in an all-cash transaction valued at $13.4 billion, or $25.00 for each First Horizon common share.

At announcement, S&P Global Market Intelligence calculates the deal value to be 173.85% of common equity, 227.39% of tangible common equity, 14.37x earnings, 15.20% of assets and 18.08% of deposits. The tangible book premium to deposits ratio is 10.24%.

Market Intelligence valuations for bank and thrift targets in the Southeast region between Feb. 28, 2021, and Feb. 28, 2022, averaged 143.93% of book and 162.10% of tangible book and had a median of 14.60x last-12-months earnings, on a per-share basis.

On a pro forma basis excluding merger adjustments, TD's U.S. franchise will be a top 6 U.S. bank, with approximately $614 billion in assets and a network of 1,560 stores, serving more than 10.7 million U.S. customers across 22 states. Globally, TD Bank Group will have approximately C$1.841 trillion in assets, with over 2,600 branches serving more than 27.5 million customers, according to a news release.

S&P Global Market Intelligence Principal Analyst Nathan Stovall

TD Bank will grow its U.S. deposit franchise by 19% and fill in gaps in the Southeast with the $13.4 billion purchase of First Horizon. The deal, which marks the third-largest whole bank deal in the U.S. since 2009, will build TD's presence in the Carolinas and Florida and offer an entrance in Texas, Georgia and Alabama but an even larger presence in Tennessee and Louisiana, where First Horizon holds 16.15% and 7.97%, respective, deposit market share in the two states.

For First Horizon, the transaction offers an attractive result for shareholders, with the deal valuing shares at a 37% premium from Feb. 25's closing price. The takeout offer also effectively erases the underperformance of First Horizon shares relative to the bank group since announcing its merger of equals with IBERIABANK in November 2019. Prior to the deal announcement with TD, First Horizon shares had underperformed the KBW Regional Bank Index by 17% since announcing the IBERIABANK merger.

Based on First Horizon's Dec. 31, 2021, balance sheet, the acquisition would add approximately $55 billion of loans and $75 billion of deposits to TD's balance sheet, and TD would expect to take a credit mark at close of $880 million, or 161 basis points of loans.

In addition, TD has agreed to invest $494 million in non-voting First Horizon preferred stock, convertible in certain circumstances into up to 4.9% of First Horizon's common stock, to support First Horizon's growth and franchise enhancement, including employee retention programs.

TD said it is committed to retaining First Horizon's client-facing bankers, with no planned branch closures as a result of the transaction.

The deal is expected to close in the first quarter of TD's 2023 fiscal year.

After the closing, First Horizon President and CEO Bryan Jordan will become Vice Chair of TD Bank Group and will also be named to the boards of TD's U.S. banking entities as a director and chair. Jordan will continue to be based in Memphis. TD Bank Group's Group Head for U.S. Retail and TD Bank USA NA's CEO, Leo Salom, will lead the combined businesses.

The deal is expected to be immediately accretive at closing to TD's adjusted EPS and over 10% accretive to 2023 adjusted EPS on a fully synergized basis. The transaction is expected to result in a fully synergized return on invested capital of 10% in 2023. The purchase price represents a 9.8x multiple of First Horizon's 2023 fully synergized earnings and a 2.1x multiple to First Horizon's estimated tangible book value at close. TD expects to achieve approximately $610 million in pretax cost synergies equal to 33% of First Horizon's 2023 noninterest expense through a combination of technology and systems consolidation, and other operational efficiencies.

TD expects to incur total merger and integration costs of $1.3 billion primarily in the first two years following close.

If the transaction does not close before Nov. 27, First Horizon shareholders will receive, at closing, an additional 65 cents per share on an annualized basis for the period from Nov. 27 through the day immediately prior to the closing. The transaction will terminate, unless otherwise extended, if it does not close by Feb. 27, 2023.

TD expects to use excess capital on its balance sheet for the transaction. TD also separately announced that the automatic share purchase plan established for its normal course issuer bid will automatically terminate in accordance with its terms.

TD Securities and J.P. Morgan served as financial advisers, and Simpson Thacher & Bartlett LLP and Torys LLP served as legal advisers, to TD. Morgan Stanley & Co. LLC served as financial adviser, and Sullivan and Cromwell LLP served as legal adviser, to First Horizon.

TD Bank Group consists of The Toronto-Dominion Bank and its subsidiaries.

In 2021, Toronto-Dominion Bank CEO Bharat Masrani had reportedly said the bank is "very open" to a large M&A deal that would expand its U.S. retail footprint.

According to Market Intelligence data, with the completion of the deal, Toronto-Dominion Bank will enter Tennessee with 142 branches to be ranked first with a 14.89% share of approximately $213.08 billion in total market deposits, will expand in Florida by 88 branches to be ranked fifth with a 4.43% share of roughly $813.6 billion in total market deposits and will expand in North Carolina by 79 branches to be ranked eighth with a 1.59% share of about $504.54 billion in total market deposits.

In addition, Toronto-Dominion Bank will enter Louisiana with 63 branches to be ranked fourth with a 7.24% share of approximately $138.25 billion in total market deposits, will enter Arkansas with 16 branches to be ranked No. 13 with a 1.54% share of about $90.56 billion in total market deposits and will enter Alabama by 14 branches to be ranked eighth with a 1.83% share of approximately $141.32 billion in total market deposits.

Also, Toronto-Dominion Bank will enter Georgia with 12 branches to be ranked No. 20 with a 0.55% share of about $336.36 billion in total market deposits, will expand in South Carolina by 10 branches to be ranked sixth with a 5.95% share of approximately $117.93 billion in total market deposits and will enter Texas with 9 branches to be ranked No. 46 with a 0.14% share of approximately $1.57 trillion in total market deposits.

Toronto-Dominion Bank will expand in Virginia by eight branches to be ranked 10th with a 0.83% share of approximately $426.77 billion in total market deposits, will enter Mississippi with 4 branches to be ranked No. 21 with a 0.79% share of about $71.38 billion in total market deposits and will expand in New York by two branches to be ranked No. 13 with a 1.96% share of approximately $2.95 trillion in total market deposits.