TD Bank Group signed a definitive agreement to acquire First Horizon in an all-cash transaction valued at $13.4 billion, or $25 for each common share of First Horizon.

“First Horizon is a great bank and a terrific strategic fit for TD. It provides TD with immediate presence and scale in highly attractive adjacent markets in the U.S. with significant opportunity for future growth across the Southeast,” Bharat Masrani, group president and CEO of TD Bank, said. “Working with the First Horizon team, TD will build upon the success of its strong franchise and deliver the legendary customer experiences that differentiate us in every market across our footprint.”

Following the closing of the transaction, Bryan Jordan, president and CEO of First Horizon, will join TD Bank Group as vice chair, reporting to Masrani, and will join TD Bank Group’s senior executive team. He will also be named to the boards of directors of TD Bank Group’s U.S. banking entities as a director and chair. Jordan will continue to be based in Memphis, TN.

“We have built a very strong business at First Horizon, and by joining forces with TD, we will create extraordinary value for our key stakeholders with a shared customer-centric strategy, enhanced scale and a broader product set for our clients. This is a true growth story,” Jordan said. “We have long respected TD as a leader in U.S. banking and are confident that its continued and growing investments in our local markets will extend our long history of community support. Thank you to our First Horizon associates for their efforts and dedication to our clients and communities as we continue to deliver for them every day. We look forward to successfully completing this transaction and are excited to join TD.”

“I am very pleased that Bryan and talented leaders from across First Horizon will join TD. Their deep customer and community relationships and proven success driving growth will be of tremendous value as we integrate our teams and deliver for the millions we serve,” Masrani said.

Leo Salom, group head of U.S. retail at TD Bank Group and president and CEO of TD Bank, will lead the combined businesses.

“I am excited to welcome First Horizon’s associates, leaders and valued customers to TD once the transaction closes. As one team with complementary businesses, distribution channels and a shared culture of best-in-class customer service, we will chart the next phase of growth together,” Salom said. “The southeastern U.S. represents a tremendous opportunity for TD and the addition of First Horizon’s commercial and specialty banking capabilities will position us as a leading national player in commercial banking. We will combine our resources and capabilities and continue to invest in the region as we focus on delivering the most differentiated banking experience in our markets.”

On a pro forma basis, excluding merger adjustments, TD Bank Group’s U.S. franchise will be a top six U.S. bank following the acquisition, with approximately $614 billion in assets and a network of 1,560 stores, serving more than 10.7 million U.S. customers across 22 states. Globally, TD Bank Group will have approximately C$1,841 billion ($1,452.90 billion) in assets, with more than 2,600 branches serving the needs of more than 27.5 million customers.

First Horizon is headquartered in Memphis, TN, with assets of $89 billion as of Dec 31, 2021. First Horizon operates 412 branches and serves more than 1.1 million consumer, business and commercial customers across 12 states.

Based on First Horizon’s Dec. 31, 2021, balance sheet, the acquisition would add approximately $55 billion of loans and $75 billion of deposits to TD Bank Group’s balance sheet, and TD Bank Group would expect to take a credit mark at close of $880 million, or 161 basis points of loans.

In addition, TD has agreed to invest $494 million in non-voting First Horizon preferred stock (convertible in certain circumstances into up to 4.9% of First Horizon’s common stock) to support First Horizon’s growth and franchise enhancement, including employee retention programs.

The transaction is expected to be immediately accretive at closing to TD Bank Group’s adjusted EPS and more than 10% accretive to 2023 adjusted EPS on a fully-synergized basis. The transaction is expected to result in a fully-synergized return on invested capital of 10% in 2023. The purchase price represents a 9.8-times multiple of First Horizon’s 2023 fully-synergized earnings and a 2.1-times multiple to First Horizon’s estimated tangible book value at close.

TD Bank Group expects to achieve approximately $610 million in pre-tax cost synergies equal to 33% of First Horizon’s 2023 non-interest expense through a combination of technology and systems consolidation and other operational efficiencies. TD Bank Group expects to incur total merger and integration costs of $1.3 billion, primarily in the first two years following close.

The transaction is expected to close in the first quarter of TD Bank Group’s 2023 fiscal year and is subject to customary closing conditions, including approvals from First Horizon’s shareholders and U.S. and Canadian regulatory authorities. If the transaction does not close prior to Nov. 27, 2022, First Horizon shareholders will receive, at closing, an additional $0.65 per share on an annualized basis for the period from Nov. 27, 2022, through the day immediately prior to the closing. The transaction will terminate, unless otherwise extended, if it does not close by Feb. 27, 2023.

TD Bank Group expects to use excess capital on its balance sheet for the transaction. Concurrent with this announcement, TD Bank Group separately announced that the automatic share purchase plan established for its normal course issuer bid will automatically terminate in accordance with its terms.

At close, TD Bank Group’s Common Equity Tier 1 ratio is expected to be above 11%.

TD Securities and J.P. Morgan served as financial advisors and Simpson Thacher & Bartlett and Torys served as legal advisors to TD Bank Group on this transaction. Meanwhile, Morgan Stanley served as financial advisor and Sullivan and Cromwell served as legal advisor to First Horizon.