Toronto-Dominion Bank Can’t Possibly Buy First Horizon at the Agreement Price

Published on

Banking industry turmoil that has FHN stock well below the Toronto bank’s offer should prompt reconsideration

First Horizon Corp. (NYSE:FHN) closed March 7 at $21.29. As of Wednesday, it’s down 26%, as the banking sector melts down from Silicon Valley Bank (NASDAQ:SIVB) to Credit Suisse Bank (NYSE:CS).

So, if you’re Toronto-Dominion Bank (TSE:TD) CEO Bharat Masrani, you’ve got to be working at extracting your bank from its deal to buy First Horizon for US$13.4 billion, or US$25 a share.

Get The Full Henry Singleton Series in PDF

Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2022 hedge fund letters, conferences and more


If TD had to close the deal tomorrow, it would pay 59% more than the current share price for the Memphis, Tennessee-based bank. That would not go over too well with shareholders.

So, the question is whether TD should scrap the deal altogether or renegotiate a much lower price on its acquisition.

Given all the uncertainty in the North American banking industry, there are real negatives to following through with the deal, even at a lower price.

Bleeding Before

BNN Bloomberg reported on March 13 that First Horizon is hemorrhaging deposits -- down 10% over the past two quarters -- losing them at a rate worse than the industry average. It quoted CIBC analyst Paul Holden for that little tidbit of information.

And that was before the SVB meltdown.

TD first announced the deal in February 2022. That came after First Horizon’s 2021 fiscal year (December year-end) showed that it had $75 billion in deposits and a $55 billion loan portfolio. Adding this business to its balance sheet would make TD the sixth-largest U.S. bank and give it tremendous bragging rights with the rest of the Big Five.

Who knows where First Horizon’s deposit balance will end up after everything is said? Time, however, TD does not have.

“With a walk date in May looming and bank stocks imploding, the question is will TD walk away or ask for a massive cut?” BNN Bloomberg reported Cabot Henderson's comments. Henderson specializes in merger arbitrage and special situations at JonesTrading.

In February, the two parties extended their walk date from Feb. 27 to May 27. So the clock is ticking with 10 weeks until the May deadline. That’s less than three months. The two companies might have been all smiles in February. Unfortunately, that’s not the case today.

Not only has the banking landscape changed dramatically since February, but the regulatory issues that plagued the First Horizon tie-up in the first place haven’t gone away.

Potential Lemon

On March 8, around the same time SVB collapsed, S&P Global Market Intelligence reported that the two parties were back at the negotiating table. The report noted that First Horizon said in its 10-K filing that TD did not expect to obtain regulatory approval by May 27. The negotiations include another potential extension to the walk date and, most likely, talks on a new price.


Of bank deals valued at $2 billion or more and announced between Jan. 1, 2020, and June 30, 2022, the median number of days between the announcement and closing was 326. S&P Global’s report indicates that TD and First Horizon were at more than 370 days as of March 8. That’s now 377 and counting.

According to Compass Point analyst Ed Groshans, this merger could get extended two more times -- to Aug. 27 and Nov. 27 -- which would bring the close very close to Christmas.

The longer this deal takes to close, the greater the risk TD is buying a potential lemon. Unless First Horizon shareholders agree to a much lower price for their shares, there’s almost no chance this deal gets done, no matter how many extensions they agree to.

TD shareholders are probably getting quite nervous at this point. If the bank is smart, it will walk away from the deal and develop a different strategy for U.S. growth.

Article by Will Ashworth, Fintel