TD Bank Financial's stock slips on plan to buy Commerce Bank; Salton shares jump more than 50%

By Sheri Kasprzak

New York, Oct. 2 - Shares of both TD Bank Financial Group and Commerce Bancorp Inc. fell on Tuesday on news that TD plans to buy the regional bank in an $8.5 billion cash and stock deal.

The move, analysts and sellside traders alike said, was not the smartest one.

"I'm not convinced it was a great idea," said one analyst familiar with the banking sector. "It's [Commerce Bank] a franchise, there's name recognition and a lot of people think they are just throwing that away."

The analyst said the price is way too low.

"We're talking only a 6% premium," he said. "A lot of people I've spoken to today are not happy with the price. It's fine if they [TD] want to buy Commerce. I think it's probably smart, strategically, for them because that gives them a foothold in the Mid-Atlantic market."

In other merger news, home appliance maker Salton Inc. announced plans to buy APN Holding Co., Inc., the parent of Applica.

The news sent shares of Salton skyrocketing by more than 57%.

The terms of the agreement were not disclosed Tuesday, but the transaction is set to close in January.

The deal was called off in August by APN because of a disagreement over the settlement date of the transaction - originally scheduled for February 2008.

A sellside trader said Tuesday that the bickering seemed a bit silly.

"We're talking a month's difference to hold up the agreement," said the trader. "They're [Salton's] stock is up because they can finally move forward with this deal. It's been several months in the works."

TD to buy Commerce

Analysts and traders alike were clucking their tongues Tuesday after TD Bank announced plans to buy Commerce Bank in an $8.5 billion stock and cash transaction.

The price tag seemed to be the major source of astonishment.

TD will buy Commerce Bank at $42 per share, a 6% premium to the company's $39.61 closing stock price on Monday. The merger is set to close in March or April of 2008.

"They're basically giving it away," said a sellside trader Tuesday afternoon. "Of course it's a good deal for TD because they're buying at an insanely low price."

Another analyst agreed.

"The price really is the problem here," he said. "It's fine if they [Commerce] were interested in being a target but selling at $42 a share is ridiculous. They could have commanded a much higher price. I don't see anything necessarily wrong with the merger itself. The banking sector is one where regional banks are really going the way of the dinosaur and are getting bought up by bigger names every day. The real issue is the price."

The merger news sent shares of TD Bank down 5.58% on Tuesday. The stock slipped by $4.29 to end at $72.65 (NYSE: TD). The stock gained 9 cents in after-hours trading.

The news also sent Commerce Bank shares lower by 14 cents to close at $39.47 (NYSE: CBH).

Under the merger terms, Commerce's shareholders will receive 0.4142 share of TD common stock and $10.50 in cash in exchange for each common share.

"Acquiring Commerce Bank offers a singularly unique and compelling opportunity for our shareholders - one that is both a strategic fit and a superior value creation opportunity through accelerated organic growth," said TD Bank Financial Group chief executive officer Ed Clark in a statement.

"The combination of Commerce with TD Banknorth doubles the scale of our U.S. banking business and accelerates our transformation to a leading North American financial institution. Commerce brings an impressive geographic footprint and market share in a contiguous region and a complementary North American retail banking business model."

"Our joining forces with TD Bank Financial Group opens the door to tremendous new growth opportunities," said Dennis DiFlorio, Commerce Bank's chairman, in a news release.

Once the deal is sealed, DiFlorio and Bob Falese, president and CEO of Commerce Bank, will run Commerce but will report to Bharat Masrani, TD Banknorth's CEO.

"Commerce gives us scale in the Mid-Atlantic and will allow us to turbo-charge our organic growth strategy," said Masrani in a news release. "We look forward to creating the first truly integrated, North American financial services powerhouse."

Salton to buy APN

In other merger news, Salton finally sealed its plan to buy APN Holding, the parent of Applica Inc. Once the merger settles, Applica will be the subsidiary of Salton.

The deal was held up in August after APN became disgruntled over the settlement date of the merger. The merger was originally set to close in February. The transaction will now close in January.

Salton's stock jumped by 57.14%, or 12 cents, to close at $0.33 (Pink Sheets: SFPI).

Since APN is owned by Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, LP, Harbinger will own 92% of the outstanding common stock of Salton and existing holders of Salton's series A voting convertible preferred stock, series C nonconvertible preferred stock and common stock would own 3%, 3% and 2%, respectively, of the outstanding common stock of Salton once the merger seals.

"We believe that this transaction is the best strategic alternative available to enhance stockholder value," said William Lutz, Salton's CEO, in a news release.

"The combination of Salton and Applica is expected to create opportunity for significant future value enhancement for Salton stockholders, as well as benefit customers and suppliers, as a result of the expanded brand portfolios, strengthened international presence and improved capital structure flexibility of the combined companies," he said.

"The combined company can operate more efficiently than either Applica or Salton on a stand-alone basis and will benefit significantly from cost and revenue synergies."

"The combined company will be well-positioned as a leading provider of quality, innovative consumer appliances around the world," said Terry Polistina, chief financial officer and chief operating officer, in a statement.

"The company will be able to leverage brands, products and geographies, as well as provide the scale to drive organic growth. In addition, we believe the combined company will be a compelling platform for future expansion in our industry."

Connected to the deal, Salton will convert all of its outstanding series A voting convertible preferred stock into common shares of Salton, convert all outstanding shares of series C nonconvertible preferred stock and exchange $90 million in principal of Salton's second-lien notes and about $15 million in 2008 senior subordinated notes for shares of a new series of nonconvertible 16% preferred stock of Salton.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.