First Horizon Cratered After TD Ends $13.4-Billion Merger Talks

The merger deal between TD Bank Group (TSX: TD) and First Horizon Corporation (NYSE: FHN) has been terminated, the firms said on Thursday.

The acquisition, which valued First Horizon at $13.4 billion when announced in February 2022, was put off because the banks did not know whether or not they would have the requisite regulatory approvals, according to TD.

As part of the termination agreement, TD will pay First Horizon $200 million in addition to a $25 million reimbursement charge.

First Horizon’s shares crashed as much as 38% on the day following the news. This is on top of the bank’s stock declining by more than 30% between the announcement of the deal and late March. 

The merger would have made TD the sixth-largest bank in the United States in terms of assets. The merger first showed symptoms of difficulties in February, when TD notified First Horizon that it might not be able to obtain regulator approval by the extended deadline of May 27.

“I cannot speculate on when we will receive approval,” Masrani said on a March 2 earnings call with analysts.

The proposal met another roadblock after the failure of Silicon Valley Bank sent shockwaves across the United States banking sector, where TD already had a large presence, including a 12% investment in The Charles Schwab Corp.

However, TD appeared to remain committed to the agreement. At TD’s annual shareholder meeting on April 20, when asked if he was still interested in buying First Horizon, TD CEO Bharat Masrani said, “We see the benefits of the merger.” He provided few other details about the status of the transaction.

“This decision provides our colleagues and shareholders with clarity,” Masrani said in the statement announcing the merger call off. “Though disappointed with the outcome, we move forward with a strong, growing franchise in the United States, servicing more than ten million customers across our footprint.”

First Horizon CEO Bryan Jordan called the news “unfortunate and unexpected,” but promised that his company will “continue on its growth path operating from a position of strength and stability.”

But during the investor call later that morning, Jordan stressed that the fact that regulatory approvals were not obtained by the May 27 deadline had nothing to do with First Horizon.

“We were informed by TD that they could not provide an updated timeline for an extension and they could not provide assurance of regulatory approval in 2023 or 2024,” he said. “Let me assure you, we pursued every possible path to complete this transaction without success. At no time, did we discuss any changes in price or any other changes to the structure of the deal.”

According to National Bank of Canada analyst Gabriel Dechaine, the termination of the deal is beneficial to TD shareholders.

“We do not believe most investors were supportive of the transaction,” Dechaine wrote, noting shareholders had become more apprehensive in the wake of the U.S. regional banking turmoil. “Eliminating the FHN acquisition from our model results in lower 2024E EPS. However, we believe the market will reward TD with a higher valuation multiple, if only to reflect the bank’s suddenly more defensive capital position.”

Royal Bank of Canada said that the demise of the merger talks may have put “TD’s future to close US deals may be in doubt and TD’s credibility as an acquirer has been dealt a blow,” as its analysts lower their price target for the Canadian bank.

TD last traded at $81.67 on the TSX.

Information for this briefing was found via Financial Post and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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