First Horizon Plunges 38% Below TD Bid in Regional Bank Nightmare

(Bloomberg) — First Horizon Corp. fell by the most since September 2008 as the crisis in regional banks cast doubt on whether Toronto-Dominion Bank will follow through with its planned $13.4 billion takeover of the lender.

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First Horizon declined as much as 33% Monday morning and was briefly halted due to volatility. The stock pared losses but still ended the day down 20% at $16.04. That’s about 36% below TD’s takeover offer.

“With a walk date in May looming and bank stocks imploding, the question is will TD walk away or ask for a massive cut?” said Cabot Henderson, who focuses on merger arbitrage and special situations at JonesTrading.

“Things are so fluid and with downside seemingly getting scarier by the minute, it’s extremely hard to have any conviction,” Henderson added.

As the fallout spreads from SVB Financial Group’s failure, merger-arbitrage traders are rushing to examine which pending deals might be affected. The TD-First Horizon transaction had already been seen at risk because of regulatory delays, even before the collapse of SVB and Signature Bank poisoned investor sentiment for regional banks.

Adding to the complexity is the slump in Toronto-Dominion shares and in 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 it has sold Schwab shares in the past as an easy way to raise capital.

Repricing Risk

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

“I think the likelihood that TD’s going to close this deal at the previously announced price is very low,” Nigel D’Souza, a bank analyst at Toronto-based Veritas Investment Research Corp., said in an interview. Toronto-Dominion has offered $25 a 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.

First Horizon shares have fallen 35% this month. The bank is seeing pressure on its deposits “at a worse rate than the industry average,” with deposits falling 10% over the last two quarters, CIBC analyst Paul Holden said in a note to clients on Friday.

“The developments regarding Silicon Valley Bank and the banking sector in general have only exacerbated those fears,” said Frederic Boucher, a risk arbitrage analyst at Susquehanna International Group.

–With assistance from Derek Decloet.

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