Business Context and Reporting Period
This Form 6-K filing by The Toronto-Dominion Bank (TD) reports a material change occurring on November 20, 2006, with the report dated November 30, 2006. TD Bank Financial Group announced a definitive agreement to acquire the remaining outstanding shares of its majority-owned subsidiary, TD Banknorth Inc., in a going-private transaction.
Key Financial Metrics and Transaction Terms
- Acquisition Price: $32.33 per share in cash for all outstanding TD Banknorth shares not owned by TD.
- Total Consideration: Approximately US$3.2 billion (CDN$3.6 billion).
- Valuation Multiples: The price represents 22 times TD Banknorth's GAAP earnings and 14.4 times cash operating earnings for the twelve months ended September 30, 2006.
- Premium: 6.5% premium over the November 17, 2006 closing price.
- Current Ownership: TD currently owns approximately 57% (130 million shares) of TD Banknorth.
- Assets: TD Banknorth reported $40 billion in total consolidated assets as of September 30, 2006. TD Bank Financial Group reported CDN$385.8 billion in assets as of July 31, 2006.
Material Changes and Outlook
The primary material change is the Agreement and Plan of Merger to make TD Banknorth a wholly-owned subsidiary. Upon consummation, TD Banknorth common stock will be delisted from the New York Stock Exchange. The transaction is expected to close in March or April 2007, subject to shareholder approval and regulatory clearance from the Massachusetts Board of Bank Incorporation.
Financial Guidance and Accretion: Based on I/B/E/S estimates, TD expects the following earnings per share (EPS) accretion:
- GAAP Basis: CDN$0.02 per share for six months in 2007; CDN$0.12 per share in 2008.
- Adjusted Basis (excluding intangible amortization): CDN$0.05 per share for six months in 2007; CDN$0.16 per share in 2008.
Risks and Contingencies
The transaction is subject to customary conditions, including:
- Approval by holders of a majority of TD Banknorth's outstanding shares.
- Approval by holders of a majority of shares not owned by TD or its affiliates.
- Receipt of requisite regulatory approvals.
- General economic conditions, financial market performance, and interest rate fluctuations.
- Regulatory changes in the U.S. and Canada.
Management noted that two large stockholders holding or having discretion over 26.2 million shares have indicated support or expectation to vote in favor of the transaction.
Investor Verification Checklist
- Verify the final closing date of the merger (expected March/April 2007).
- Confirm receipt of all necessary regulatory approvals, specifically from the Massachusetts Board of Bank Incorporation.
- Review the upcoming proxy statement for TD Banknorth for detailed transaction terms and voting procedures.
- Monitor the actual EPS accretion against the projected GAAP and adjusted figures for 2007 and 2008.
- Assess the impact of the delisting of TD Banknorth stock on market liquidity and investor access.