Lloyds Share News (LLOY)

Recently floated TSB has received a cash takeover approach from Spain's Banco Sabadell, which TSB's majority owner Lloyds said it would accept.A preliminary bid at 340p per share has been tabled, the lender confirmed, 80p higher than its price at flotation last June.Within minutes, shares in TSB, which are among the most heavily shorted in London, rocketed 26% higher to 333.32p.Ironically, before today there had been some speculation in the market that TSB might be contemplating making its own bid for Aldermore.The board of TSB has indicated to Sabadell that it would be willing to recommend an offer at the proposed price, subject to reaching agreement on the other terms and conditions of any offer.NO-ONE EXPECTS THE SPANISH ACQUISITIONAlthough the acquisition logic was agreed to be robust, Sabadell's shares shot off in the opposite direction to TSB's and were suspended by the market regulator after falling 7.52%, later reinstated and settling slightly higher.In comments to our sister-site in Madrid Bolsamania, Nuria Álvarez from the Spanish broker Renta 4 pointed out that the €4bn offer is "equivalent to 25% of Sabadell's market capitalization, and that if the Spanish bank wants to fund the offer in cash, a capital hike will probably be necessary."It is a very high amount, and if a capital increase is required, the share dilution will be discounted in the stock price".Self Bank analyst Victoria Torre told Digital Look that it looked like a positive move for the Spanish bank because the purchase would make Sabadell the sixth largest financial institution in UK."Banco Sabadell hopes to finance the operation in a way that will have the smallest impact on its capital, but it definitely looks like there will need to be a serious share issue," Torre said. "That's what is causing the plunge in the Spanish bank's shares."The Spanish bank's reasoning was praised by Dr Kebin Ma, assistant professor of finance and banking at Warwick Business School in the UK."Sabadell faces the risk that the Spanish economy will remain sluggish for a prolonged period. The bank is not as diversified as Spanish rival Santander, and the acquisition of TSB should certainly help it achieve better diversification."Also TSB's business is mainly retail-based, which is robust and does not come with too many complications."For their part, in an afternoon report e-mailed to clients analysts at Morgan Stanley chipped in: "SAB offer for TSB could have an ROI of 10% 2017/18E post cost synergies on our numbers, however we believe strategically its a high risk transaction given IT platform migration needed. From a capital perspective the deal would consume 150-200bp CET1, which we believe SAB would need to raise."