What does TSB takeover by Sabadell mean

The board of Sabadell has approved the bid for Lloyds TSB at 340P per share. The bank will have to raise €1.6 billion in capital to finance the operation, an offer which will exceed the current share price valuation by 15%. The deal will allow Sabadell to advance its strategy of international diversification by entering directly into the UK market. Sabadell’s share price dropped in opening trading, but recovered to gain 1.95% by 11.00.

Lloyds Bank has confirmed that it will accept the offer to sell the 50.0% stake it controls in TSB and has recommended to other shareholders accept Sabadell’s offer. In order to carry out the operation, the company has announced a capital increase of €1.6 billion.

The final figure was disputed by analysts. Bankinter estimated the deal would be worth €1.5-€1.7 billion, while ACF calculated the cost would be lower at €1.43 billion, accounting for the value of current share price value plus the aforementioned 15%. Renta 4 said the final amount will be €1,606,556 billion, a figure that would be 18% higher than the current share price. The maximum number of new shares will be 1,085,510,925.

Shareholders will have preferential subscription rights and will receive three new shares for every eleven existing. The new shares have been issued at €1.48 per share, which is down 33% on yesterday’s price of €2.21 per share. The duration of the preferential subscription period is 21 calendar days after the registration with the CNMV-April 10.

This operation means a strategic change for Sabadell, since the entity had focused on aggressive inorganic growth in Spain over the past two decades, with the purchase of more than one dozen entities. TBS is the seventh largest bank in the United Kingdom, a mature and highly competitive market where theoretically the Spanish entity could contribute with its SMEs market knowledge, which would be complementary business of TSB, focused on the mortgage market – almost 80% of its loan portfolio.

Standard & Poor’s comfirmed Banco Sabadell’s long-term rating at BB +, as well as B for the short term B. The rating agency considers the transaction as neutral in terms of capital.