Toronto-Dominion Bank (TD) and First Horizon Corp. have decided to cancel their $13.4 billion merger due to regulatory approval concerns, according to a joint statement released on Wednesday. The decision comes after weeks of speculation about the fate of the deal that was announced in February 2022, just before major central banks began their historic campaign of interest rate increases.
The sudden change in the rate environment has put pressure on the balance sheets of some US regional banks, causing deposit outflows and leading to the collapse of firms such as Silicon Valley Bank and First Republic Bank. Shares in First Horizon fell by 36% to $9.70 in premarket trading, as investors reacted to the news.
Despite the deal's collapse, First Horizon has reassured investors that it has stable funding and plenty of capital. The Memphis-based bank held an early-morning conference call to provide this reassurance. "We have seen no notable changes to our outflows. It's been consistent since the beginning of March," said Chief Financial Officer Hope Dmuchowski.
The two banks said that the unspecified regulatory issues that clouded the deal were not related to First Horizon. "While today's announcement is unfortunate and unexpected, First Horizon will continue on its growth path," said First Horizon CEO Bryan Jordan in the statement. TD CEO Bharat Masrani said the decision provides "colleagues and shareholders with clarity."
TD's deal for First Horizon would have been its largest ever, expanding its US footprint by adding more than 400 branches in the US Southeast. The deal's collapse leaves TD with a large amount of capital, potentially giving it the balance sheet to seek other deals. "Given the precipitous drop in regional bank valuations since TD made its announcement to purchase First Horizon, the fact that it is not proceeding at the original valuation is a positive," said Barclays analyst John Aiken in a note to investors.
Even before the recent market turmoil, doubts about the deal had been swirling for months. President Joe Biden has been urging tougher oversight of mergers, and Senator Elizabeth Warren criticized TD over its sales practices. First Horizon closed on Wednesday at $15.05 a share in New York, far below TD's $25 offer.