TSB (LSE: TSB) announced today that it has reached an agreement on the terms of a recommended cash offer for itself by Spanish lender, Banco de Sabadell. Under the terms of the offer, TSB shareholders will receive 340p per share in cash, valuing the bank at approximately £1.7bn.
TSB’s largest shareholder, Lloyds (LSE: LLOY), also stated its commitment to the deal. Lloyds has agreed to sell a 9.99% interest in TSB to Sabadell, and the group has entered into an irrevocable undertaking to accept the offer in respect of its entire remaining 40.01% shareholding in TSB.
A clean break
This deal will allow Lloyds to make a clean break from TSB, although it seems as if the bank will lose out financially.
Lloyds is set to receive £170m for its 9.99% stake in TSB on 24 March, followed by a further transaction of £680m for Lloyds’ remaining TSB stake. The total cash consideration Lloyds could receive from the deal is £850m, which will be used by the bank for general corporate purposes.
Unfortunately, according to today’s press release on the matter, the transaction will lead to a separation charge on Lloyds’ income statement of approximately £640m. Additionally, on the completion of the deal, Lloyds’ equity tier 1 capital ratio — capital cushion — will fall by an estimated 0.27% as costs of the deal outweigh the benefits.
Nevertheless, for TSB shareholders the deal is great news. Indeed, TSB’s shareholders will receive 340p in cash for their shareholding, while still qualifying for the bonus share scheme implemented by Lloyds when it floated TSB in June last year. The 12 month lock up period for the bonus scheme ends on 25 June, when Lloyds will make arrangements to pay, any investors who would have been entitled to receive bonus shares under the terms of the scheme, the cash value of those bonus shares at the offer price to be paid by Sabadell.
So, as well as the transaction costs, it looks as if Lloyds will lose money from the bonus share scheme as well. The cash payments appear to be coming from the bank’s own back pocket.
But there’s still a chance that the TSB-Sabadell deal will be blocked by regulators. Until the transaction is approved, it’s not time to celebrate.
The bottom line
All in all, it looks like Lloyds won’t see any benefits from the TSB-Sabadell deal. However, the deal will allow the bank to make a ‘clean break’ from its smaller spin-off, which is a suitable compromise.
