TSB looks set to lose its recent independence after a £1.7 billion swoop by Spanish bank Sabadell sent shares soaring in anticipation of a deal.
Former owner Lloyds Banking Group, which floated the lender off in June and has to dispose of the remaining 50 per cent stake this year, said it was “minded to accept” the offer, which has the backing of TSB’s board.
City analysts said the 340p-a-share cash bid looked compelling, offering a 29 per cent premium over TSB’s share price before the offer was announced.
Confirming the “preliminary proposal” from Sabadell yesterday, TSB said: “Based on preliminary discussions, the board of TSB believes that Sabadell could support and accelerate TSB’s retail growth strategy and accelerate the expansion of TSB’s presence in the SME sector.
“Sabadell is a strong competitor in its home market and has developed a successful international presence in the US. Sabadell believes that the current banking industry dynamics and macro-economic environment make the UK an attractive market for future investment.”
Banking expert Kebin Ma, of Warwick Business School, said the deal looks good for both parties. He added: “Banco Sabadell clearly faces the risk that the Spanish economy will remain sluggish for a prolonged period. The bank is not as diversified as Spanish rival Santander, and the acquisition of TSB should certainly help it achieve better diversification.
“From TSB’s point of view, the deal is probably more about pure ownership, rather than any change in business model or risk. The offer is very good and the stock market response suggests the deal would create value for shareholders.”
Ian Gordon at Investec said the deal priced TSB “correctly” as the shares had been trading too cheaply since flotation.
“Given that Sabadell acquired Lloyds’ Spanish business in 2013, there is clearly an existing relationship which may have helped discussions to develop. We think the proposal looks sensible and attractive,” Gordon said.
“However, we equally assume Lloyds attempted to flush out all other credible interest before embarking on its ‘Plan B’ of an initial public offering just ten months ago, so a counter-bid now feels unlikely.”
The proposed price would provide a swift profit for the 60,000 ordinary retail investors who took part in TSB’s 260p-a-share flotation last year. It will also boost Spain’s hold on UK banking after Santander’s acquisition of Abbey, Alliance & Leicester and parts of Bradford & Bingley.
Sabadell, which is Spain’s fifth largest bank, has pledged to keep the TSB brand name and create a “robust competitor” in UK banking.
Reporting its maiden figures to investors just last month, TSB chief executive Paul Pester hailed 2014 as “a pivotal year” and refused to rule out acquisitions.
He said 500,000 people – or about one in 12 of those switching or opening a new bank account last year – had chosen TSB. That helped lift maiden annual pre-tax profits 2.3 per cent to £133.7 million, up from £130.7m in the previous year.
Last year’s flotation was more than ten times oversubscribed and raised £455m, resulting in TSB’s return to the market for the first time since 1995 when it merged with Lloyds.
Sabadell, which operates under several different brands, was founded in Barcelona in 1881. It now employs 17,500 people and has 2,320 branches.
Talks involving TSB and Sabadell are ongoing but shares in the FTSE 250-listed lender surged 23.5 per cent to close at 326.1p. Any transaction would also be subject to regulatory approvals.
News of the bid came as new bank Shawbrook said it planned to raise £90m by floating on the London Stock Exchange.
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