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First Horizon (FHN) Gets Shareholder Nod for Buyout by TD Bank

Progressing with its merger, First Horizon Corporation FHN announced that its shareholders gave the nod for the company to be acquired by Canada-based The Toronto-Dominion Bank TD.

The transaction was announced in first-quarter 2022 and is expected to close in the first quarter of TD's fiscal 2023. The deal is yet to receive U.S. and Canadian regulatory approvals, and is subject to the completion of other necessary closing norms.

Management stated that shareholders’ approval underlines the financial and strategic benefits of the transaction. It added, "following the completion of the transaction, the combined organization will have immediate scale benefits and be well positioned to create extraordinary value with a shared customer-centric strategy and broader client capabilities."

FHN has greatly diversified its product offerings, and strengthened its banking franchise in the Carolina and Florida markets on the back of inorganic growth moves. In July 2020, the company merged with IBERIABANK Corporation. This has likely increased its buyout appeal and enabled FHN to snap up the deal at an impressive premium.

Markedly, First Horizon will be acquired in an all-cash transaction valued at $13.4 billion or $25 for each First Horizon common share.This represented a premium of 37% to FHN’s closing price on Feb 25, before the deal was unveiled.

For any delay in the deal closure post Nov 27, 2022, First Horizon shareholders will receive additional 65 cents per share, on an annualized basis, from Nov 27, 2022, through the day prior to the closing. Also, if the deal does not close by Feb 27, 2023, the transaction will be terminated.

TD Bank has agreed to invest $494 million in non-voting First Horizon preferred stock to aid the latter’s growth and franchise enhancement. In addition, upon closing, TD Bank will contribute $40 million to a First Horizon foundation. Amid the stringent regulatory environment for bank mergers, the commitment to local communities will perhaps be looked at favorably by regulators.

The deal also underlines TD’s long-term growth strategy in the United States and will foster the company’s Southeast footprint expansion in South Carolina and Florida, while providing entry into Tennessee, Louisiana, Texas, Alabama, and Georgia.  Collectively, the population in First Horizon's markets is expected to advance 50% faster than the U.S. national average. This offers significant growth opportunities for TD.

Per deal details, the acquisition is projected to add $55 billion of loans and $75 billion of deposits to TD's balance sheet. TD is also expected to take a credit mark at close of $880 million or 161 basis points of loans.

Over the past six months, shares of FHN have rallied 39.4% against the 4.1% decline of the industry.


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Zacks Investment Research

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Currently, FHN carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inorganic Growth Efforts by Other Firms

With a view to help its clients build long-term financial wellness, Truist Financial Corporation TFC acquired the award-winning gamified finance mobile app, Long Game. Long Game changes the way people engage with their banks. The mobile finance app uses prize-linked savings and casual gaming to motivate smart financial behavior.

Truist Financial is expected to use Long Game’s innovative technology to inspire and build better lives and communities.

Itaú Unibanco Holding S.A ITUB announced on Apr 29, 2022, the completion of its acquisition of 11.36% equity interest in the total capital of XP Inc. for a deal value of R$ 8 billion.

The acquisition of XP is not expected to have any material impact on Itaú Unibanco’s current fiscal year’s results. Further, there will be no change in the corporate governance of XP as a result of the acquisition. ITUB received approval from the Central Bank of Brazil to acquire the minority interest in XP in November 2021.

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