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 atapproximately 1.7bn.
TSBs largest shareholder,Lloyds(LSE: LLOY), alsostated 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 totalcash consideration Lloyds could receive from the deal is 850m, which will be used by the bank for general corporate purposes.
Unfortunately, according to todays press release on the matter, thetransaction 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, TSBs 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, whenLloyds 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 banks own back pocket.
But theres still a chance that the TSB-Sabadell deal will be blocked by regulators. Until the transaction is approved, its not time to celebrate.
The bottom line
All in all, it lookslike Lloyds wont 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.
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