TD Bank signs $1.3B deal to acquire Cowen to step up U.S. growth strategy

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TD Bank (NYSE:TD) confirms on Tuesday an agreement to buy Cowen (NASDAQ:COWN), a New York-based financial services firm, in an all-cash transaction valued at US$1.3B that will accelerate the Canadian bank's growth strategy in the U.S. with Cowen's investment bank and complementary products and services.

The Toronto-based bank will pay US$39 per share of Cowen's (COWN) common stock. The deal is expected to be "modestly accretive" to TD's 2023 adjusted EPS and generate ~14% adjusted return on invested capital on a fully-synergized run rate basis. TD (TD) expects to achieve US$300M-$350m in revenue synergies by year three. It also expects pretax integration and retention costs of ~US$450M over three years.

"Cowen is a leading independent dealer with a premier U.S. equities business and a strong, diversified investment bank that, when combined with TD Securities, will allow us to accelerate our strategic U.S. growth plans," said TD Bank Group (TD) President and CEO Bharat Masrani

To help fund the deal, TD (TD) has sold 28.4M non-voting common shares of Charles Schwab (SCHW) for proceeds of ~$1.9B, reducing TD's stake in Schwab to 12.0% from 13.4%.

The purchase price represents 1.7x multiple of Cowen's (COWN) tangible book value as of March 31, 2022 and 8.1x multiple of Cowen's 2023 earnings.

Cowen (COWN) shares are rising 7.1% in Tuesday premarket trading to $38.00, and TD Bank (TD) shares are slipping 0.7%.

Conference call at 8:30 AM ET.

The Wall Street Journal had reported the agreement late Monday.

Comments

[2whiteroses]

What's to become of COWN's outstanding debt such as COWNL? Proxy doesn't appear to mention whether it's to remain outstanding as is or be assumed.

[Fain2018]

@2whiteroses doesn’t need to mention it do they?

[2whiteroses]

@Fain2018 By "need" if you mean "required," I'm not sure... However, the COWNL prospectus appears to me to imply there are two possible outcomes in a change of control situation...Automatic call under change of control is not an option however, I would say it is normal that an acquisition does define how outstanding debt issues and/or preferred issues will be treated.... TD is an investment grade company and COWN is not.... If the debt is assumed, it's a positive event and will probably lead to a call at earliest allowable date 6/15/23. If it's not assumed and Cowon remains outstanding as a legal entity, then it's possible the issued could go dark because of Rule 15c2-11. That'd be a negative...

[windyhill]

TD. This will be a nice tuck-in for TD Securities. COWN was buying back its own shares at $34.06 in Q1. Excellent growth rate compared to its peers in the US.
TD has my support here with this acquisition. Go TD Go.

[JunkBondage]

Nicely done, Solly! This was a $2 stock 10 or 12 years ago, I recall.