Santander has reached an agreement to acquire TSB Banking Group from Banco Sabadell, with a valuation of £2.65 billion in an all-cash transaction.
TSB serves approximately 5 million customers, with £34 billion in mortgages (2% market share in the UK) and £35 billion in deposits.
After the acquisition is completed, Santander UK will become the second largest bank in the country by personal current account balances and number four in mortgages.
Last month, Spanish lender Sabadell confirmed it has received early interest from potential buyers for TSB.
The move comes as Sabadell seeks to strengthen its position amid an €11bn (£9.4bn) hostile takeover attempt by rival Spanish bank BBVA.
Santander successfully acquired and integrated Abbey in 2004 and both Alliance & Leicester and Bradford & Bingley in 2008.
Ana Botín, Banco Santander’s executive chair, said: "The acquisition of TSB represents a continuing strategic commitment to our customers in the UK, offering a compelling opportunity that is financially attractive to our shareholders and aligned with Santander’s long-term objectives. It strengthens our franchise in a core market through the acquisition of a low-risk and complementary business that adds to our diversification.
"We are creating a stronger and more competitive business across key products such as personal current accounts where the combined business will become the second largest bank in the UK by market share. The transaction will accelerate our path to greater profitability in the UK and helps achieve a return on tangible equity of 16% by 2028.
"The acquisition also reflects our commitment to growing profitably through disciplined capital allocation. This acquisition meets our goal of achieving a return on investment above 20% and EPS accretion from year 1, while consuming limited capital and having low execution risk.
"Furthermore, the transaction will not affect Santander’s existing distribution policy and 2025 targets.”
Mike Regnier, CEO of Santander UK, said: "This is an excellent deal for customers combining two strong and complementary banks, creating one of the most substantial banks in the UK and materially enhancing the competitiveness of the industry.
“At Santander UK we have momentum in our strategy to become the best bank for customers in the UK by investing in technology and service and improving our processes and efficiency. This deal accelerates our transformation allowing us to enhance our customer proposition and invest more in innovative products and our digital offering, supported by the human touch service so many appreciate, not least in our new branch formats and enhancements across the country.
"We are fully committed to ensuring a seamless integration, by leveraging our market leading technology and significant experience. Maintaining the highest levels of service for customers across both banks will be a key priority and we will support all colleagues through the transition, as we invest in building a stronger bank for the future”.
