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Shawbrook’s Ambitious Merger Plan
Shawbrook Group, a prominent lender to small businesses in the UK, has unveiled a £3.5 billion merger proposition to the Co-operative Bank. In recent weeks, Shawbrook approached Co-operative Bank’s owners with a proposal for a stock-based fusion, aiming to combine the strengths of the two entities.
Strategic Move to Pre-empt Auction
Sources reveal that Shawbrook’s initial proposal seeks to preempt a comprehensive auction of Co-operative Bank’s former division. This preliminary offer outlines a stock-based transaction that would provide Co-operative Bank shareholders with approximately 29% ownership in the merged banking group, effectively valuing the Co-operative Bank at around £800 million.
Advisor and Potential Auction
To facilitate its interest in the merger, Shawbrook has engaged Barclays as its investment banking advisor. While the indicative proposal is not expected to lead to immediate discussions, Shawbrook remains keen on acquiring Co-operative Bank. The formal auction process is anticipated to begin next month, with Shawbrook poised to be an active participant.
Financial Landscape and Banking Sector Dynamics
Together, Shawbrook and Co-operative Bank reported an underlying profit of nearly £375 million in the previous year. This potential merger holds significant importance, standing as one of the most substantial banking sector agreements since the aftermath of the 2008 financial crisis. The industry faces a blend of rising interest rates and recent banking sector tremors.
Competing Suitors and Advisory Implications
Apart from Shawbrook, other potential bidders for Co-operative Bank’s acquisition are expected to emerge. Among them, OneSavings Bank, Aldermore, Nationwide, and Paragon Bank are notable contenders. Shawbrook’s engagement of Barclays as an advisor for its own interest in the merger is likely to exclude Barclays as a direct bidder for Co-operative Bank.
A Striving Past and Regulatory Relief
Co-operative Bank’s journey has been marred by financial challenges over the last decade, including crises, rescues, and failed mergers. Successfully selling the previously mutual bank would provide relief to regulators who’ve been involved in previous rescue efforts. The bank’s history includes a rescue in 2013, further bailout in 2017, and a series of ownership changes. The impending sale process is guided by PJT Partners and Fenchurch Advisory Partners, with Shawbrook and Co-operative Bank remaining tight-lipped about the ongoing developments.
