TD Bank-First Horizon deal meltdown leaves traders scrambling for protection
Bank scrap proposed takeover
Merger arbitrage traders were expecting hiccups in Toronto-Dominion Bank’s proposed takeover of First Horizon Corp., but they were unprepared for what happened on May 5 when the US$13.4 billion transaction melted down.
THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLY
Subscribe now to read the latest news in your city and across Canada.
- Unlimited online access to articles from across Canada with one account.
- Get exclusive access to the National Post ePaper, an electronic replica of the print edition that you can share, download and comment on.
- Enjoy insights and behind-the-scenes analysis from our award-winning journalists.
- Support local journalists and the next generation of journalists.
- Daily puzzles including the New York Times Crossword.
SUBSCRIBE TO UNLOCK MORE ARTICLES
Subscribe now to read the latest news in your city and across Canada.
- Exclusive articles by Kevin Carmichael, Victoria Wells, Jake Edmiston, Gabriel Friedman and others.
- Daily content from Financial Times, the world's leading global business publication.
- Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.
- National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.
- Daily puzzles, including the New York Times Crossword.
REGISTER TO UNLOCK MORE ARTICLES
Create an account or sign in to continue with your reading experience.
- Access articles from across Canada with one account.
- Share your thoughts and join the conversation in the comments.
- Enjoy additional articles per month.
- Get email updates from your favourite authors.
Don't have an account? Create Account
tap here to see other videos from our team.
TD Bank-First Horizon deal meltdown leaves traders scrambling for protection Back to video
tap here to see other videos from our team.
The deal spread had been widening in recent months, as some traders were anticipating a price cut. But a total collapse weeks ahead of the May 27 deadline was not in the cards. Now, these traders are desperately seeking protection in a market that’s reluctant to give it as First Horizon shares nosedive.
“It’s painful,” said Cabot Henderson, who focuses on arbitrage and special situations at JonesTrading. “The pain comes from arbs who were generally positioning for a price cut and not a full break, and are now scrambling to limit downside in an industry undergoing a rolling crisis.”
The banks scrapped the proposed takeover early on May 4 after they said they couldn’t see a clear path to regulatory approval. That slammed First Horizon shareholders, who had already endured a months-long roller-coaster ride with the stock trading as high as US$24.90 in late February before TD said the deal may be delayed by regulators.
That was compounded by the continuous pressure on regional banks after the failure of Silicon Valley Bank in March. The stock closed at US$15.05 on May 3, 40 per cent below TD’s US$25 offer. It tumbled as much as 40 per cent on May 4 to a low of US$8.99.
Now, with the deal collapsed and merger-arbitrage traders forced to unwind their positions, the focus shifts to how much First Horizon is worth as a standalone company. That’s challenging considering the turmoil swirling around regional banks as PacWest Bancorp and Western Alliance Bancorp lead a renewed slide in U.S. lenders.
Jefferies analyst Casey Haire pegged First Horizon’s fundamental value between US$11 and US$13 per share based on metrics with comparable firms, according to a research note.
The Memphis-based bank looks like it’s in decent shape relative to its peers, at least in isolation, said JonesTrading’s Henderson.
“But given all the turbulence in the sector and the fact that you have to think fundamental investors are not in a buying mood right now, the price recovery could take a while,” he added.
Bloomberg.com
