Toronto Dominion has called off it deal to acquire US-based First Horizon. The market reacted by marking down First Horizon’s share price by 35% to $9.60.

TD signed a deal to buy First Horizon in an all-cash deal worth $13.4bn last February.

The First Horizon Bank share price was then $24.50.

At the time, First Horizon had $89bn in assets, serving 1.1 million consumers, business and commercial clients. First Horizon operates in 12 states of the US through a network of 412 branches.

TD aimed to leverage First Horizon’s regional presence to support its growth strategy in the US.

TD+ First Horizon: enlarged TD would have operated 1,560 branches

If concluded, the enlarged TD would have served 10.7 million customers with a network of 1,560 branches.

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The proposed deal has a chequered history. After a delay in obtaining regulatory approval, the original February 2023 completion date was pushed back to May.

But now TD has told First Horizon that it does not have a timetable for regulatory approvals to be obtained. It says that the reasons are unrelated to First Horizon. As there is uncertainty as to when and if these regulatory approvals can be obtained, the parties mutually agreed to end the deal.

Under the terms of the termination agreement, TD will make a $200m cash payment to First Horizon. This payment is in addition to the $25m fee reimbursement due to First Horizon pursuant to the merger agreement.

“Today’s announcement is unfortunate and unexpected. First Horizon will continue on its growth path operating from a position of strength and stability,” said First Horizon Chairman, President and Chief Executive Officer Bryan Jordan.

“Our strong capital position, disciplined credit quality, expense control measures, and well-diversified and stable funding mix have enabled our business to navigate challenging banking industry dynamics.

“We remain focused on executing our client-centric growth plan. We continue to develop and expand deep client relationships across all of our markets. These include some of the fastest-growing US markets. We maintain a strong, asset-sensitive balance sheet well-positioned for the current rate environment.”

Short sellers target TD

“This decision provides our colleagues and shareholders with clarity. Though disappointed with the outcome, we move forward with a strong, growing franchise in the US. We service more than 10 million customers across our footprint,” said Bharat Masrani, Group President and Chief Executive Officer, TD Bank Group.

Investor sentiment regarding the TD/First Horizon deal soured last month. Specifically, investors appeared more bearish on TD than any other bank in the region. Short-sellers increased their bets against TD on the basis that TD would be over-paying for First Horizon.