Scotiabank to acquire 14.9% interest in KeyCorp for $2.8B

Scotiabank announced (BNS) that it has entered into an agreement to acquire an approximate 14.9% pro-forma ownership stake in KeyCorp (KEY) through an issuance of common shares at a price of $17.17 per share, representing an 11% premium to the volume weighted average price for the last 20 trading days. The total cash consideration is approximately $2.8B. The investment will be completed in two stages-an initial investment of 4.9% and an additional investment of approximately 10%, for a total pro forma ownership of approximately 14.9%. The investment is expected to be accretive to earnings per share in the first full year following closing of the additional investment. Subject to clearances and regulatory approvals, the Initial Investment of 4.9% is expected to close in the fourth quarter of fiscal 2024, and the Additional Investment of approximately 10% is expected to close in fiscal 2025. Upon completion of the additional investment, Scotiabank will have the right to designate two individuals to serve on KeyCorp’s board of directors; one senior officer of Scotiabank and one third party director designated by Scotiabank and reasonably acceptable to KeyCorp. The Initial Investment will be recorded as an equity investment at fair value, with subsequent mark to market changes through other comprehensive income. On completion of the additional investment, the approximately 14.9% ownership will be classified as an investment in associate for accounting purposes. The CET1 ratio impact at closing of the initial investment is estimated to be approximately 10 basis points and is estimated to be a further 40 to 45 basis points at the closing of the additional investment. At this time, and until such time the bank elects otherwise, the bank intends to suspend the discount on its shareholder dividend and share purchase plan effective for dividends to be declared subsequent to the declaration expected on August 27. Consequently, this will be the last dividend that will be eligible to participate in the discount.