Background on Santander and Relevance of the Acquisition
Santander, a leading Spanish bank by market value, has announced its agreement to acquire the UK-based TSB from Sabadell for an initial amount of £2.65 billion ($3.64 billion), subject to Sabadell shareholder approval.
Sabadell’s Decision and Santander’s Growth
Sabadell’s decision to divest TSB presents Santander with a defensive move against BBVA’s hostile takeover attempt. If the deal goes through, Santander will become the seventh-largest branch network in the UK, alongside its existing operations.
The acquisition aims to help Santander become the third-largest bank in the UK by personal current account balances, further solidifying its position in the British market.
Impact on the UK Banking Landscape
This acquisition marks another step towards consolidation in the UK banking sector, where smaller banks struggle to gain market share from dominant institutions.
Santander UK’s lower profitability compared to its Spanish parent bank has raised questions about Santander’s commitment to the UK market. Earlier this year, Santander had been reviewing its business, with a potential UK exit among the options. However, CEO Ana Botín reaffirmed her commitment to the UK as a primary market.
Financial Expectations and Synergies
Santander expects the acquisition to generate a return on invested capital exceeding 20%, contributing to an increase in Santander UK’s tangible equity return from 11% in 2024 to 16% in 2028.
The bank anticipates cost synergies of at least £400 million and expects the deal to boost earnings per share from the first year, with an approximate 4% growth by 2028.
Santander also plans to return at least €10 billion in share buybacks from 2025 and 2026 profits.
Sabadell’s Plans and Adjustments
Sabadell stated that the sale proceeds from TSB will fund an extraordinary cash dividend of €0.50 per share (equivalent to €2.5 billion) alongside regular dividends of €1.3 billion expected from 2025 profits.
The initial price of £2.65 billion implies a 1.5x multiple of TSB’s book value, according to Sabadell. The deal may increase to around £2.9 billion, incorporating profits generated from the transaction’s initiation date until completion in Q1 2026.
Sabadell will present the deal for shareholder approval on August 6, as it is subject to BBVA’s offer.
Key Questions and Answers
- What is the main reason behind Santander’s acquisition of TSB? Santander aims to strengthen its presence in the UK banking market, become the third-largest bank by personal current account balances, and solidify its position against dominant institutions.
- What are Santander’s financial expectations from this acquisition? Santander expects a return on invested capital exceeding 20%, an increase in Santander UK’s tangible equity return from 11% in 2024 to 16% in 2028, and cost synergies of at least £400 million.
- How will Sabadell utilize the proceeds from TSB’s sale? Sabadell plans to use the sale proceeds for an extraordinary cash dividend of €0.50 per share and regular dividends of €1.3 billion, funded by 2025 profits.
- What is the current status of the deal? The acquisition is subject to Sabadell shareholder approval on August 6, as it is also under consideration from BBVA’s offer.
