NEW YORK (The Deal) -- Spain's Banco de Sabadell has secured its U.K. entrance with an agreement to buy TSB Banking Group for £1.7 billion ($2.5 billion). The 340-pence-per-share offer matches the terms announced last week and represents a 29% premium to where TSB's shares were trading before the transaction was disclosed. The takeover deal comes just nine months after TSB held a London IPO priced at 260 pence per share, and allows an earlier-than-stipulated exit from TSB by 50% shareholder Lloyds Banking Group , which spun off the lender to comply with the terms of European Commission state aid clearance. Sabadell, which takes its name from its Catalan home town, is to pay book value for TSB. TSB is one of the largest of a growing field of postcredit-crisis "challenger" banks, whose emergence Britain's coalition government has embraced with enthusiasm as it seeks to stimulate lending to small and medium-sized enterprises and to present itself as a champion of consumer choice. Sabadell indicated it may make further acquisitions in the sector, where a host of recently established or restructuring players are planning IPOs, following the recent listings of AnaCap Financial Partners-backed Aldermore Group, Richard Branson and Wilbur Ross-backed Virgin Money (UK) Holdings, and JC Flowers-backed OneSavings Bank. One obvious target for Sabadell could be Clydesdale Bank, whose parent National Australia Bank hopes to list after several unsuccessful attempts to sell the business. "The challenger bank market is relatively unconsolidated in the U.K. and Sabadell believes that this will create opportunities to further develop TSB's market position over time," Sabadell said. Sabadell Chairman Josep Oliu Creus added in a statement, "We see the U.K. as an attractive market with a strong regulatory framework, sound macroeconomic fundamentals and exciting prospects for growth." Sabadell said it will raise €1.6 billion ($1.7 billion) through a rights issue to help fund the purchase and maintain its common equity Tier One ratio following the offer. It said the deal will boost earnings per share in the "medium term." TSB CEO Paul Pester and CFO Darren Pope will continue to lead the company under its new owner, which is buying the bank as part of a wider push to increase assets outside Spain. Sabadell said the purchase will lift the proportion of its assets outside Spain to 22% from 5% as of December. Must Read: Warren Buffett's Top 10 Dividend Stocks Lloyds said it had agreed immediately to sell 9.99% of TSB to Sabadell for £170 million and had signed a binding deal to tender its remaining 40.01% to the offer for another £680 million. That agreement stays in place even if a competing bidder offers more. Lloyds CEO António Horta-Osório said the agreement is a "significant and positive step for the group and will enable us to meet our commitments to the European Commission, well ahead of its mandated deadline." The EC last May extended Lloyds' deadline for shedding the TSB business to the end of 2015, from an original deadline of November 2013, after an attempt to sell the 630-odd branches to Co-operative Bank collapsed. Lloyds said the transaction will lead to a charge of £640 million, including the cost it will shoulder of TSB switching out of its own IT infrastructure, and other transition arrangements. It said the disposal will reduce its common equity Tier One capital ratio by 27 basis points. Sabadell's shares were up €0.04, or 1.8%, at €2.249 by midmorning Friday in Madrid, valuing the stock at around €8.9 billion. TSB was also up 1.8% at 333 pence, while Lloyds was little changed. The offer requires approvals from the U.K.'s Prudential Regulation Authority and antitrust officials at the European Commission. It is contingent on Sabadell securing 75% acceptances. UBS' Simon Lyons and Benjamin Crystal and Bank of America are advising Lloyds, whose legal advice comes from Linklaters' Matt Bland, James Wootton and Christian Ahlborn. Sabadell's financial advice comes from Goldman Sachs' Dirk Lievens, Mark Sorrell and Carlos Perteio, while its legal advice comes from an Allen & Overy team including Richard Browne, Pablo Mayor and Antonio Martinez. TSB's financial advisers are Citigroup's Global Markets' Gilles Graham, John Sandhu and Edward McBride, with Robert Redshaw providing broking advice; and Rothschild's Stephen Fox, Edward Mitting and Jonathan Slaughter. Its lawyers are a Herbert Smith Freehills team led by James Palmer and Mike Flockhart. Must Read: Hedge Funds Love These 5 Big Stocks -- but Should You? Read more from:
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