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Jul 5, 2022

TD Bank explores takeover of U.S. brokerage Cowen

Brendan Caldwell discusses TD Bank

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US brokerage firm Cowen Inc. rose the most in over two years after people familiar with the matter said Canadian lender Toronto-Dominion Bank is weighing a deal.

Cowen rose 20 per cent to US$28.94 at 9:55 a.m. in New York trading Tuesday, valuing the firm at about US$805 million. That was its biggest gain since March 2020. 

The Toronto-based lender is working with advisers to study a possible transaction for Cowen, people familiar with the matter said on July 1. No final decision has been made and Toronto-Dominion could opt against pursuing a deal, the people said, asking not to be identified because discussions are private

Representatives for Toronto-Dominion and Cowen couldn’t be reached for comment. 

A transaction would extend the reach of Toronto-Dominion’s investment banking arm, TD Securities, deeper into equity and debt offerings as well as research. Toronto-Dominion, one of Canada’s biggest lenders, has been aggressively looking to grow via acquisitions, agreeing to buy First Horizon Corp. in February for about US$13.4 billion.

That deal was Toronto-Dominion’s largest takeover ever and Chief Executive Officer Bharat Masrani’s boldest move since taking the reins in 2014. Masrani has been saying for over a year that the lender would consider putting its extra capital to work in a significant US deal if the right opportunity came along.

 

ANALYST RESPONSE

Some analysts were supportive of a potential deal. 

The addition of Cowen could add to Toronto-Dominion’s return on equity while expanding its financial services offerings, Sumeet Mody of Piper Sandler Cos. said in a research note. 

Devin Ryan of JMP Securities said the “clearing price” for Cowen should be US$50 to US$60 per share, based on its revenue. 

“Given Cowen’s depressed share price juxtaposed against what we view as a strong intermediate-term fundamental outlook, we are not overly surprised that acquisition interest would exist,” Ryan said. 

Cowen, which went public in 2006, saw its net income soar 38 per cent year-over-year to US$289 million in 2020 amid a record year for initial public offerings. In the past 12 months, it’s acted as a bookrunner on 55 IPOs, serving as the lead adviser on five of the listings, according to data compiled by Bloomberg.

US bank mergers have been accelerating in recent years, as lenders turn to consolidation to cut costs and add scale to better compete with giants such as JPMorgan Chase & Co. and Bank of America Corp., which have been using their heft to invest heavily in technology as people and businesses increasingly bank online. Activity has slowed in recent months, as the industry grapples with how inflation and recession fears may affect customers.