TSB Banking Group(LSE: TSB) is charging higher this morning, after it was revealed that one of Spains biggest banking groups is in talks to buy the UKs seventh-largest high street lender.
Banco de Sabadell is TSBs suitor, and the Spanish lender has already approachedthe board of Lloyds Banking Group which still holds 50% of TSB to make an offer for its remaining share of TSB.
Lloyds is required to divest its remaining share in TSB by the end of this year. An offer from the Spanish bank would allow Lloyds to make a clean break from its smaller spin-off.
Sabadell is offering 340p per sharein cash for TSB, and management hasalready indicated to Sabadell that it would be willing to recommend this offer at the proposed price.
However, the approach from Sabadell is only a preliminary proposal, which may or may not result in a formal offer for the entire share capital of the Company.
According to the City takeover code, Sabadell is required toannounce a firm intention to make an offer for TSB by 5:00pm on9 April. Or The Spanish lender is required to announce that it does not intend to make an offer for the company.
Merger synergies
Sabadell is one is Spains strongest banking groups, and a merger between the Spanish lender and TSB doesnt look to be such a bad idea.Sabadell is the fourth-largest private banking group in Spain with multiplebanks, brands, subsidiaries and part-owned companies covering all areas of the financial business sector united under one brand.
Moreover,for the year ending 2014 Sabadell reported a tier one capital ratio financial cushion of 11.7%, which is better than many of the UKs largest banks.
And according to TSBs press release on the matter, TSBs management believe that a merger with Sabadell could help improve the UK banks growth rate:
Based on preliminary discussions, the Board of TSB believes that Sabadell could support and accelerate TSBs retail growth strategy and accelerate the expansion of TSBs presence in the SME sectorSabadell is a strong competitor in its home market and has developed a successful international presence in the USSabadell anticipates that under its ownership, TSB would be able to further enhance its growth strategy and efficiency, benefitting from Sabadells resources, experience gained in the Spanish banking market
Sabadell specialises in SME lending, and TSB is trying to increase the size of its loan book here in the UK by 30% to 50%. Sabadells experience would come in handy when trying to achieve this goal.So a merger between Sabadell and TSB would be beneficial for both parties.
Still, as TSB noted within this mornings press release, theres no guaranteethat a deal between the two bankswill go ahead, and for this reason alone I would stay away. You could end up paying a high price for TSBs shares only to see the deal fall apart.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.