Banco Santander has reached an agreement to acquire TSB Banking Group from Sabadell in an all-cash deal valued at up to £2.9bn. 

The deal values TSB at five times its expected 2026 net income. 

However, shareholders will be asked to initially approve a £2.65bn deal. 

The final price is expected to adjust to £2.9bn, incorporating estimated profits from the agreement date until the anticipated completion in the first quarter of 2026. 

Sabadell will seek approval for the sale along with an extraordinary cash dividend of €0.50 per share, equivalent to approximately €2.5bn, at the general shareholders’ meeting on 6 August.  

Proceeds from the transaction will fund this dividend. 

TSB, a UK retail bank, operates 218 branches and serves approximately 5 million customers in personal and small business banking, with £34bn in mortgages and £35bn in deposits.  

The transaction is expected to yield a return on invested capital exceeding 20% and increase Santander UK’s return on tangible equity from 11% in 2024 to 16% by 2028.  

At the group level, earnings per share accretive for Santander from the first year and of 4% in 2028. 

The combined entity will have a loan-to-deposit ratio of 107%, compared to Santander UK’s current 108%. 

Santander executive chair Ana Botín said: ”The acquisition of TSB represents a continuing strategic commitment to our customers in the UK, offering a compelling opportunity that is financially attractive to our shareholders and aligned with Santander’s long-term objectives. It strengthens our franchise in a core market through the acquisition of a low-risk and complementary business that adds to our diversification.” 

Sabadell Chairman Josep Oliu stated: “This transaction benefits our shareholders regardless of the outcome of the takeover bid. 

 “If approved by the General Meeting, the deal will proceed even if the bid is withdrawn.” 

“As I have reiterated, Banco Sabadell is a bank with a clear focus on Spain. We offer the highest dividend yield among Spanish banks, have delivered the strongest share price performance over the past four and a half years, and have a strong future as an independent entity serving our customers.” 

The acquisition comes at a time when BBVA pursues a takeover bid for Sabadell, which faces government restrictions preventing a full merger for at least three years.  

The sale of TSB has drawn media attention for potentially limiting BBVA’s access to a key asset in its acquisition strategy.