TSB takeover: should you sell your shares?

20th March 2015


With TSB accepting a bid by Spanish Banco Sabadell, is now a good time to sell your shares in the challenger bank?


Around 30% of TSB’s shares were bought by retail investors when it floated on the London stockmarket last year and the £1.7 billion bid by Sabadell – equal to 340p a share – will throw up a number of questions for investors.


Laith Khalaf, senior analyst at Hargreaves Lansdown said TSB ‘might soon become the bank that likes to say ‘si’’.


‘The deal is almost a dead cert to be accepted by shareholders,’ he said. ‘Half of them have effectively done so as Lloyds has given the nod, and they own 50% of the stock. IT will take just one more solitary shareholder to approve the deal in order to carry it through.’


However, investors will have to decide whether to cash in now or hang on to the shares.


‘For investors who bought at float, the bonus shares look like a carrot worth hanging on for,’ said Khalaf. ‘Later investors also stand to see a return form handing on, if the deal goes through. All investors who hold on bear the risk that regulators decide to be party-poopers and block the deal. This looks unlikely to happen, but there could be considerable downside if it does.’


Those who purchased shares at first float are now sitting on a profit of 28% in less than a year, based on the current selling price of 333p and a float price of £2.60. They will gain another 2% if the deal goes ahead at a share price of 340p.


They will make a further 5% from bonus shares that were promised to investors at float.


‘The shares were promised on the basis of one bonus share for each 20 ordinary shares bought in the float, subject  to a maximum of 38 bonus shares per investors,’ said Khalaf.


‘These become fully payable in cash, if the deal goes through, at a price of £3.40 per share. So the maximum windfall from these shares would be £129.20.’


On this basis the typical investors would be 37% up since float.

Will the takeover happen?


There is a very good chance that the deal will go ahead considering Lloyds, the largest shareholder, is backing it. Although there is some risk that either the Prudential Regulation Authority in the UK or the European Commission could prevent it, this is unlikely.


‘This risk looks remote, but the market is clearly still wary, which explains why the stock is trading as far below the offer price as it is,’ said Khalaf.


‘Perhaps the scale of the downside is a consideration here. Prior to the announcement of the takeover move, the shares were trading at £2.64. If the deal falls through and the share price reverts to this level, that would mean a 20% loss from today’s (Friday’s) valuation.’


Overall, Khalaf said shareholders would likely ‘be rewarded for hanging on’.



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