Some TD shareholders urge bank to ditch or renegotiate First Horizon deal

By Maiya Keidan

TORONTO (Reuters) – TD Bank Group should abandon or renegotiate its $13.4 billion acquisition of U.S. lender First Horizon as the regional banking crisis has unearthed unknown risks, some small shareholders told Reuters.

Regional lenders in the U.S. face a crisis of confidence after the collapse of Silicon Valley Bank and Signature Bank last month.

First Horizon shares are trading almost 30% below TDs offer price of $25 each, which points to the high risk to the deal closing. Since the acquisition was first announced, TD shares are down 11.1% vs 4.5% for the financials sector

“I don‘t think it’s something TD should go ahead with in this environment,” said Barry Schwartz, portfolio manager at Baskin Financial Services, a shareholder in TD.

“Walk away and take the break fee and be able to get other deals cheaper now,” Schwartz said.

TD, Canada‘s No. 2 lender, is obligated to go through with the transaction but would have to pay $25 million to First Horizon if regulators don’t approve it, according to the contract. If TD does not proceed, First Horizon could sue for damages, and lawyers estimated it would cost hundreds of millions. That compares with TDs last reported quarterly profits of C$1.6 billion ($1.19 billion).

A First Horizon spokesperson did not respond to multiple requests for comment.

“As a shareholder, I‘m fine with these write-offs,” said Schwartz. “It will all be forgotten, but if there are more problems at First Horizon, that’s so much worse.”

TD offered a 37% premium to buy First Horizon more than a year ago in a deal that would make TD the sixth-largest U.S. bank, operating in 22 states.

While the deal isn‘t subject to a shareholder vote, the opposition underscores how some investors are turning cautious on the Canadian bank’s U.S. acquisition strategy, which was once seen as the best way to beat sluggish growth at home.

Canadas top six banks control about 90% of banking operations in the country.

The transaction awaits approval from the Federal Reserve and the Office of the Comptroller of the Currency in the U.S. and the Office of the Superintendent of Financial Institutions in Canada.

As previously disclosed, TD is in discussions with First Horizon to extend the May 27 closing date, a TD spokesperson said on Monday.

“I am against the acquisition and would like to see the bank cancel it,” Tim Burt, founder of Cardinal Capital Management, who personally owns 3,000 shares, told Reuters.

Even the shareholders who support TD going ahead with the deal say it should not pay the original price proposed.

“I think this gives them an opportunity to be in the drivers seat, to renegotiate at a lower price,” said Ben Jang, a portfolio manager at Nicola Wealth.

But some are hopeful that the deal will close.

Brokerage Wells Fargo on March 24 said it expected the deal to still take place by May 27, without price renegotiation.

A First Horizon top-20 shareholder told Reuters he expects the deal to be extended with no other changes.

“TD still wants the asset, and also probably knows this is the last deal that they will be able to make in the U.S. with the Biden (administration) probably getting another four years.”

($1 = 1.3442 Canadian dollars)

(Reporting by Maiya Keidan; Editing by Denny Thomas and Jonathan Oatis)