Scotiabank has agreed to acquire around 14.9% pro-forma ownership stake in American financial services company KeyCorp in a deal worth approximately $2.8bn.
The consideration of $17.17 per share for KeyCorp represents a premium of 11% to the volume weighted average price for the last 20 trading days.
Under the terms of the agreement, the investment will be completed in two stages. Scotiabank will make an initial investment of $0.8bn to own 4.9% of KeyCorp’s common stock.
The additional investment will be made to acquire the remaining 10% for a total pro forma ownership of approximately 14.9% in KeyCorp.
Following the completion of the additional investment, Scotiabank will have the right to designate two individuals to serve on KeyCorp’s board of directors.
Scotiabank president and CEO Scott Thomson said: “This strategic investment in KeyCorp, a premier bank in the US, significantly increases the capital deployed to our identified priority markets.
“We believe that this transaction provides attractive near-term returns to our shareholders and creates future optionality for Scotiabank in the North American corridor, given our unique position as the only Canadian bank with a presence across Canada, the US, and Mexico.”
Headquartered in Cleveland, Ohio, KeyCorp offers deposit, lending, cash management, and investment services to individuals and businesses in 15 American states.
The company has $187bn in assets and around 1,000 branches offering commercial and retail banking and investment advice and services.
According to KeyCorp, the transaction will expedite its capital and earnings improvement. It will also bolster the financial services company’s capacity for growth.
KeyCorp chairman and CEO Chris Gorman said: “While we continue to be comfortable with our current capital position, we determined that the investment enables Key to accelerate our well-communicated capital and earnings improvement while bolstering our strategic position.
“Further, this transaction creates greater capacity for growth by enabling additional investments in targeted scale across our franchise and increases Key’s strategic agility as we navigate an uncertain environment from a position of strength.”
In line with the transaction, KeyCorp and Scotiabank intend to explore future commercial partnerships to better serve their respective client bases.
Subject to clearances and regulatory approvals, the initial investment is expected to be closed in Q4 2024, and the additional investment is scheduled to be completed in fiscal 2025.
For the transaction, J.P. Morgan Securities and KeyBanc Capital Markets serve as financial advisers, with Sullivan & Cromwell providing legal counsel to KeyCorp.
Bank of America and Scotiabank act as financial advisers, while Cravath, Swaine & Moore serves as legal counsel to Scotiabank.
