TD Bank Group calls off First Horizon deal

TD Bank Group has called off its US$13.4-billion deal to acquire U.S. bank First Horizon Corp., citing regulatory uncertainty around the takeover.

The bank said Thursday it had reached a mutual agreement with the Tennessee-based bank to terminate the acquisition because it was unclear when and if it would be able to obtain approval for the deal.

“This decision provides our colleagues and shareholders with clarity,” said TD chief executive Bharat Masrani in a statement.

“Though disappointed with the outcome, we move forward with a strong, growing franchise in the United States, servicing more than 10 million customers across our footprint.”

TD had said earlier this year that it did not expect to receive regulatory approval for the First Horizon deal by a May 27 deadline, but that it was in talks to extend the closing date window.

The cancellation of the deal comes amid upheaval in the U.S. banking sector, including the collapse of Silicon Valley Bank and Signature Bank in March and Monday’s closure and sale by regulators of First Republic Bank. The sale of much of First Republic’s assets to JPMorgan Chase marked the second-largest bank failure in U.S. history.

The strain on the banking sector has put pressure on the value of many mid-sized banks, leading to calls from some for TD to walk away or renegotiate the terms of the deal it first announced in February 2022.

The two banks did not, however, talk of changing the deal, said First Horizon chief executive Bryan Jordan on a conference call Thursday.

“At no time did we discuss any changes in price, or any other changes to the structure of the deal,” said Jordan.

He said the regulatory uncertainty was not related in any way to First Horizon, and that TD told him they couldn’t provide assurances of approval this year or in 2024.

The collapse of the deal, rather than a renegotiation, was somewhat unexpected, said Barclays analyst John Aiken in a note.

“We are surprised that the parties could not come to an agreed upon lower price and believe that there could be broader repercussions from walking away from the deal.”

TD might find future potential partners less willing to sit across the table, he said, while the end of the deal also raises questions about how the bank is going to put its excess capital to use.

Under the terms of the agreement, TD will pay First Horizon a US$200-million break fee. The payment is in addition to a US$25-million fee reimbursement owed to First Horizon under the merger agreement. The First Horizon preferred shares purchased by TD Bank will continue to reflect a conversion price of US$25 per share.

At TD’s shareholder meeting in April, Masrani said he still saw the benefits of the deal, but notably absent were his comments from March that the bank remained “fully committed to the transaction.”

The end of the deal comes as U.S. bank acquisitions face heightened scrutiny and longer timelines under the Biden administration. Edward Jones analyst James Shanahan noted that merger approvals, including BMO’s recent US$16.3-billion acquisition of Bank of the West and another one by U.S. Bancorp, took about twice as long compared with before.

“The Biden administration appears to be particularly concerned about the potential impact on local communities, including branch closures that could inconvenience customers,” said Shanahan in a note.

He said this administration has also been more focused on how mergers affect the ability of banking customers to access credit, particularly among traditionally underserved communities.

TD faced criticism at a public meeting about the merger last year for what some called a poor track record of serving Black and Latino clients, though the bank noted several recent initiatives to increase lending to communities of colour.

The bank also faced criticism during the review for past actions around fees after it reached a US$122-million settlement with U.S. regulators in 2021 stemming from illegal overdraft practices.

In announcing the end of the deal, TD did not provide any details about what might be causing the regulatory delays.