A logo hangs on display outside a Banco Sabadell branch in Barcelona. Sabadell has made a proposal of 340 pence in cash for each TSB share.


Reuters/London


British challenger bank TSB has received a takeover approach from Banco Sabadell, valuing the business at about $2.6bn and sending its shares soaring by nearly a quarter.
TSB said such a move would accelerate its growth prospects and help it compete with bigger rivals.
Sabadell, Spain’s fifth-biggest bank, has made a proposal of 340 pence in cash for each TSB share, subject to reaching agreement on the terms and conditions of an offer, and talks are continuing.
TSB, Britain’s seventh-biggest lender, said it would recommend the offer to shareholders. The approach represents a 29% premium on Sabadell’s closing price of 264.1 pence on Wednesday.
Shares in TSB rose 24% to 328 pence at 1330 GMT. Shares in Sabadell were down 7.2%.
The sale would enable Lloyds Banking Group to dispose of its remaining 50% stake in the business, which it was ordered to sell by European regulators as a condition of its £20bn ($30bn) government rescue during the financial crisis of 2007-9.
It would also demonstrate the attractiveness of new British banks to foreign investors looking for exposure to Britain’s economic recovery through lenders untainted by the misconduct issues which have hampered Britain’s biggest banks.
Cross-border takeovers have been rare in the banking sector since the financial crisis, with bigger banks focusing on slimming down to bolster capital and meet tougher regulations.
But industry sources say consolidation could pick up among smaller and medium-sized banks, which are striving to gain the scale required to take on their larger rivals.
Lloyds, which is still 23% owned by the government, said it was “minded to accept” the offer. It would make £850mn from the sale, bringing the total it has raised from selling the business to just under £1.5bn.
That is nearly double what it would have made if it had gone through with its original plan to sell the business to the Co-operative Bank — a deal that collapsed when the Co-op’s capital shortfall became apparent.
However, Lloyds has spent about £2bn so far on the entire sale process, sources said.
Lloyds floated the business on the London Stock Exchange last June following the collapse of the Co-op deal. Banking sources said it received informal approaches for the business before it decided on an initial public offering, and for its remaining stake after TSB had listed. But none led to anything firmer until the Sabadell talks.
“There were approaches from various parties but absolutely nothing concrete,” said one source with direct knowledge of the matter. The approaches were mainly from private equity parties.
Sabadell started examining the possibility of taking over TSB around two months ago, but formal talks between the two sides only started around a fortnight ago, sources familiar with the matter said. Sabadell notified Lloyds of its interest.
Lloyds was not directly involved in the discussions, the sources said, but it does have an existing relationship with Sabadell, having sold its unprofitable Spanish banking business to Sabadell in April 2013.
That deal saw the Lloyds take a 1.8% stake in Sabadell and the two banks form a long-term strategic alliance.
Analysts said counter-bidders could also emerge. Industry sources have in the past told Reuters Virgin Money could merge with TSB to create a bank big enough to compete with larger rivals. Virgin declined to comment yesterday.
“I suspect that this could trigger rival bids whether it’s from Virgin Money or other international players,” said Jefferies analyst Joe Dickerson.
Shore Capital analyst Gary Greenwood said there was a “low probability” of a competing offer as TSB’s larger British rivals would be unable to get involved because of competition rules.
Sabadell is planning to diversify by expanding overseas to offset sluggish growth in its home market, which is in the early stages of recovery following a deep recession.
A number of new banks have emerged since the financial crisis but they have struggled to grow to a size that makes them effective challengers to Britain’s ‘big 4’ banks — Lloyds Banking Group, Royal Bank of Scotland, Barclays and HSBC — which control over three-quarters of personal accounts and make 9 out of 10 business loans.
TSB said it believed Sabadell could support and accelerate its growth in personal banking and help it expand its small business lending. It currently has only a 4.3% share of the personal current account market in Britain.