- Shawbrook Proposes £3.5 Billion Stock-Based Merger with Co-operative Bank
- Attempt to Preempt Auction and Strengthen Banking Sector Presence
- Potential Bidders and Private Equity Interests in the Deal
Shawbrook, a small business lender supported by private equity, has proposed a stock-based merger with the Co-operative Bank.
One of the largest British lenders to small enterprises is planning a £3.5 billion partnership with the Co-operative Bank.
Shawbrook Group has contacted the Co-operative Bank’s proprietors in recent weeks to propose a stock-based merger between the two companies.
According to insiders, Shawbrook made the preliminary offer to prevent a full auction of the old Co-op Group division.
The approach entailed an offer to transfer approximately 29% of the combined banking group to the Co-operative Bank’s shareholders in a transaction that would have valued the target at approximately £800 million, they said.
Barclays has been hired by Shawbrook to advise it on its interest in its smaller, consumer-focused competitor.
One added that it was doubtful that the indicative offer would result in further negotiations before a larger auction.
Shawbrook continues to be interested in an acquisition of the Co-operative Bank and is expected to play an active role in the process, which will begin formally as early as next month.
Last year, Shawbrook and the Co-operative Bank reported a combined underlying profit of nearly £375 million.
Shawbrook and the Co-operative Bank would be one of the largest banking industry mergers since 2008.
It would occur at a time when the industry has been buoyed by rising interest rates and shaken by the failure of Silicon Valley Bank and the emergency acquisition of Credit Suisse by Swiss rival UBS.
Other financial institutions are anticipated to investigate formal proposals for the Co-operative Bank.
OneSavings Bank has long been regarded as one of its most likely bidders, but a recent warning that profits would be negatively impacted by customers rushing to secure new fixed-rate deals has prompted some City analysts to query whether it will submit a bid.
Additionally, Aldermore, Nationwide, and Paragon Bank have been identified as potential bidders.
Barclays’ role as Shawbrook’s advisor may prevent it from presenting a Co-operative Bank bid alone.
Shawbrook’s proprietors, the private equity firms BC Partners and Pollen Street Capital, have been the subject of speculation regarding a transaction that would generate value for them.
A almost year-old sale process to value Shawbrook at over £2 billion was halted owing to market conditions.
The Co-operative Bank approached the Spanish-owned TSB about a merger in the autumn of 2021, but discussions stalled.
A successful sale of the cooperative bank would ease authorities who have given two bailouts in a decade.
The Co-operative Bank’s 2013 bid to acquire TSB’s branch network failed due to its problems.
It was compelled to turn to American hedge funds for a £1.5bn bailout, while its former chairman, Paul Flowers, was humiliated by tabloid revelations regarding his personal life.
In 2017, Bain Capital Credit and JC Flowers bought 10% of the lender to save it again.
The remaining equity is held by a consortium of hedge funds.
In December 2020, negotiations to sell the Co-operative Bank to Cerberus Capital Management, a frequently controversial investor, broke down.
The Co-operative Bank is being advised by PJT Partners and Fenchurch Advisory Partners on its upcoming sale process.
Saturday, a Shawbrook spokesperson declined to comment, and the Co-operative Bank could not be reached for comment.
