First Horizon drops 38% from TD bid in regional bank nightmare

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(Bloomberg) — First Horizon Corp fell the most since September 2008 as a crisis at regional banks raised doubts over whether Toronto-Dominion Bank would follow through with its plan to takeover the lender for $13.4 billion.

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First Horizon dropped 33% on Monday and has been stalled for some time due to volatility. The stock pared losses but still ended the day down 20% at $16.04. That’s about 36% less than TD’s takeover offer.

“With the May running date approaching and bank stocks falling heavily, the question is, will TD walk away or demand massive cuts?” Cabot Henderson, who focuses on merger arbitration and special situations at JonesTrading.

“Things are so fluid and the bottom line is seemingly getting scarier by the minute, making it extremely difficult to make any convictions,” Henderson said.

As word spreads from the failure of SVB Financial Group, merger-arbitrage traders are rushing to check which pending deals may be affected. Even before the SVB and Signature Bank collapses, the TD-First Horizon transaction was seen at risk due to regulatory delays, poisoning investor sentiment for regional banks.

Adding to the complexity is a slump in Toronto-Dominion shares and Charles Schwab Corp., which has fallen 32% since Wednesday. The Canadian bank owns about 10% of Schwab’s voting stock, according to data compiled by Bloomberg, and has sold Schwab shares in the past as an easy way to raise capital.

revaluation risk

Although TD has previously said it remains committed to the First Horizon transaction, Wall Street analysts believe the door is open to renegotiating the terms.

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“I think the chances of TD closing this deal at the previously announced price are very slim,” Nigel D’Souza, a bank analyst at Toronto-based Veritas Investment Research Corp., said in an interview. Toronto-Dominion has offered $25 per share for the Memphis-based bank.

A spokesperson for Toronto-Dominion declined to comment. First Horizon did not respond to requests for comment on Monday.

Shares of First Horizon have declined 35% this month. CIBC analyst Paul Holden said in a note to clients on Friday that the bank is seeing pressure on its deposits “at a rate worse than the industry average,” down 10% over the past two quarters.

“The growth of Silicon Valley Bank and the banking sector in general has only increased those fears,” said Frederick Boucher, a risk arbitrage analyst at Susquehanna International Group.

— With assistance from Derek Decloet.

(update share price, additional information on TD’s Schwab stake)

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