Shares in TSB surged by more than 23% after the bank revealed it had received a takeover approach from Spain’s Banco de Sabadell.
The Spanish bank’s offer values TSB at around £1.7bn, 30% above the price at which it floated on the stock exchange last summer. TSB is still 50% owned by the bailed-out Lloyds Banking Group.
TSB shares was up 62p to 326p on Thursday, slightly below the indicative 340p bid price but well ahead of the 260p they were listed at last year. Lloyds said TSB’s assets are valued at 327p a share.
In a statement to the London Stock Exchange, TSB said its board believes that Sabadell could accelerate TSB’s retail growth strategy and its expansion into the small business lending market. It added that Sabadell would continue to operate TSB as a “robust competitor” in the UK banking market, building on the British bank’s brand name.
Half of TSB was spun out of Lloyds last June, and the new bank views itself as a challenger to the four biggest players: Lloyds, Royal Bank of Scotland, Barclays and HSBC.
Lloyds is required to sell its remaining shares by the end of this year, and indicated it was considering accepting the offer. It said: “[Lloyds] would be minded to accept an offer at this price if it is made, subject to reaching a satisfactory conclusion on the terms.”
Lloyds was ordered to sell off the TSB branches, code-named Verde, under the terms of a deal thrashed out with the EU at the time of the £20bn taxpayer bailout. Originally it had planned to sell the business to the Co-operative Banking Group, but after talks collapsed Lloyds took the alternative route of a stock market flotation.
The proposed price for TSB suggests that advisers significantly undervalued the bank at its flotation last year. But Lloyds argued that the potential deal would see it receive about £1.5bn for TSB – after raising £630m via the flotation and £850m from the sale of its remaining stake – more than double what it would have got if the Co-op bid had gone ahead. Lloyds set the flotation price after advice from a string of investment banks, including Citigroup, JP Morgan Cazenove and UBS.
Ian Gordon, a banking analyst at Investec, said the proposal was unexpected but made sense.
He said: “Given that Sabadell acquired Lloyds’ Spanish business in 2013, there is clearly an existing relationship which may have helped discussions to develop. We think the proposal looks sensible. However, we equally assume Lloyds attempted to flush out all other credible interest before embarking on its plan B of an IPO just 10 months ago, so a counter-bid now feels unlikely.”
A takeover of TSB will not cut all of its ties with Lloyds, as it still rents the use of its IT systems from its parent. TSB could continue to pay for the use of those IT platform after a Sabadell takeover, or it could claim a £450m IT dowry from Lloyds that has been earmarked for the purpose of moving TSB on to an independent system.
A Lloyds spokesman said: “We wouldn’t just hand over £450m; rather, we would pay for the costs of TSB moving off our IT platform as they occurred.”
Last month, Lloyds announced that group profits had doubled to £170m in the year to 31 December, with its chief executive, Paul Pester, making clear that it is considering its own takeover deals. There has been speculation that TSB was eyeing the specialist lender Aldermore, which has also just floated.
TSB gained half a million new banking customers in 2014 as it stepped up its challenge to Britain’s big four lenders, winning one in 12 of all new and switching bank accounts.
Shares in Banco de Sabadell, which is valued at around €10bn (£7bn), lost 6.6% on the news of its move for TSB to close at €2.32. Buying the UK bank would give Sabadell its first European business outside Spain.
