London (Parliament Politic Magazine) – One of Britain’s largest lenders to small businesses, Shawbrook Group, is currently developing plans for a £3.5bn merger with the Co-operative Bank. According to sources, Shawbrook Group has recently approached the owners of the Co-operative Bank to propose a stock-based combination of the two companies. This preliminary proposal is an attempt by Shawbrook to preempt a full auction of the Co-op Group’s former division.
Shawbrook Enlists The Help Of Investment Bankers
Under the proposed deal, the Co-operative Bank’s shareholders would receive approximately 29% of the combined banking group, valuing the target at around £800m. To assist with its interest in the Co-operative Bank, Shawbrook has enlisted the help of investment bankers at Barclays.
However, it is unlikely that this indicative offer will lead to further discussions before a wider auction takes place. Shawbrook remains keen on acquiring the Co-operative Bank and is expected to actively participate in the formal takeover process, which is set to commence next month.
On a combined basis, Shawbrook and the Co-operative Bank reported an underlying profit of nearly £375m last year. A potential merger between these two banks would be one of the most significant deals in the banking sector since the 2008 financial crisis.
This development comes at a time when the industry is experiencing both positive and negative influences. Rising interest rates have provided a boost, but the collapse of Silicon Valley Bank and the emergency takeover of Credit Suisse by Swiss rival UBS have caused significant disruptions.
Shawbrook Likely To Collaborate With OneSavings Bank
In addition to Shawbrook, other lenders are expected to explore formal offers for the Co-operative Bank. OneSavings Bank has long been considered a likely suitor, although recent concerns about profit impact due to customers rushing to secure new fixed-rate deals have raised doubts about its bid. Aldermore, Nationwide, and Paragon Bank have also been mentioned as potential bidders.
Barclays’ role as an adviser to Shawbrook is likely to prevent it from bidding for the Co-operative Bank independently. Shawbrook itself has been the subject of speculation regarding a transaction that would generate value for its owners, private equity firms BC Partners and Pollen Street Capital. A proposed sale process, which was expected to value Shawbrook at over £2bn, was postponed almost a year ago due to challenging market conditions.
Co-operative Bank Facing Financial Crisis
In the autumn of 2021, the Co-operative Bank approached TSB, which is owned by a Spanish company, about a potential merger. Unfortunately, these discussions did not progress as planned. A successful sale of the Co-operative Bank, which was previously owned by its members, would be a relief to regulators who have had to intervene in rescue operations twice in the past decade.
Back in 2013, the Co-operative Bank’s attempt to acquire the branch network that eventually became TSB ended in disaster when the extent of its own financial crisis came to light. To secure a £1.5bn rescue, the bank had to turn to American hedge funds, while its former chairman, Paul Flowers, faced public humiliation due to tabloid revelations about his personal life.
In 2017, the bank required another bailout from investors, with Bain Capital Credit and JC Flowers acquiring a 10% stake in the company. The remaining equity is now owned by a group of hedge funds.
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Sale Of Co-operative Bank On Verge Of Financial Disaster
Previous discussions regarding the sale of the Co-operative Bank to Cerberus Capital Management, a controversial investor, fell through in December 2020. PJT Partners and Fenchurch Advisory Partners are currently advising the Co-operative Bank on its upcoming sale process.
As of now, Shawbrook, a financial institution, declined to comment, and the Co-operative Bank could not be reached for a statement. One of the leading lenders to small businesses in Britain, Shawbrook Group, is currently in discussions for a potential £3.5bn merger with the Co-operative Bank.
In recent weeks, Shawbrook Group has approached the owners of the Co-operative Bank to propose a stock-based combination of the two companies. Sources have revealed that this initial proposal is an attempt by Shawbrook to preempt a full auction of the former division of the business Co-op Group.