Toronto-Dominion Bank confirmed Tuesday morning that it has agreed to buy Cowen Inc. in its latest US takeover.
Under the terms of the deal, TD will pay $1.3 billion, or $39 per share, in cash to buy the New York-based investment bank. TD said it sold 28.4 million shares in The Charles Schwab Corp. to finance the deal; as a result, TD said the deal would be neutral to its core Tier 1 equity ratio.
“Cowen is a leading independent dealer with a leading U.S. equities business and a strong, diversified investment bank that, when combined with TD Securities, will enable us to accelerate our strategic growth plans in the U.S.,” said the president and CEO of TD Bharat Masrani in release.
The deal has been a source of speculation for weeks since Bloomberg News reported in early July that talks were underway. The Wall Street Journal reported late Monday that a deal worth more than $1 billion could be announced as soon as today.
Paul Harris, a partner and portfolio manager at Toronto-based Harris Douglas Asset Management, said the scale of TD’s U.S. investment banking ambitions will go a long way to the success of the Cowen deal.
“Is this really a deal to help their existing client base grow and help them with investment banking, corporate finance, etc.? Is that the goal? Or is the goal to say we want to be a major investment bank in the United States? And I think if that’s the case, I think it’s going to be very difficult. … So if you’re going to compete with Goldman (Sachs), I think that would be a very bad thing, or with Morgan Stanley or JP Morgan.”
Harris, whose firm owns stock in TD, added that the Cowen deal will likely “look terrible” in a few years if TD has any intention of trying to compete with those Wall Street giants.
TD said the purchase of Cowen would be “modestly” accretive to fiscal 2023 adjusted earnings per share and that it expects up to $450 million in pre-tax integration and retention costs over a three-year period. The transaction, which TD said is expected to close in the first quarter of next year, is subject to regulatory approvals in Canada and the United States, as well as a vote by Cowen shareholders.
“The reality is that by selling its stake in Schwab, [TD] it simply trades some US wealth for US capital market exposure. The diversification inherent in this trade is not necessarily a bad thing, although we note that the market tends to favor wealth over capital markets, especially after a historic M&A cycle. On top of that, the track record of successful cross-border acquisitions in capital markets is scant, with retention the main hurdle in the medium to long term,” wrote Manny Grauman, an analyst at Scotia Capital, in a note to clients.
Cowen is the second major US acquisition that TD has disclosed this year. In February, the Canadian bank announced it had agreed to buy Memphis-based First Horizon Corp. for 13.4 billion US dollars. This transaction is still awaiting final regulatory approvals.
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