Lloyds Sells Above-Target Slice of TSB in IPO

LONDON (The Deal) -- The U.K.'s Lloyds Banking Group  (LYG) on Friday, June 20, confirmed it was on track to sell as much as 38.5% of TSB Banking Group in a London IPO after pricing the shares in the upper half of the original range to assign a market value of £1.3 billion ($2.2 billion) to the business.

TSB shares surged on their debut and by mid-morning in London were trading up more than 13% on their IPO price of 260 pence, at 295.25 pence.

The successful IPO underscores expectations that rising central bank rates and a recovering British economy will stoke consumer lenders' earnings. It may galvanize others in a long line of consumer or small business lenders waiting in the wings to stage London IPOs.

JCFlowers & Co. LLC's OneSavings Bank plc became the first of the current crop to list earlier this month when it made its debut with a market value of £413 million. Other lenders working on IPOs include AnaCap Financial Partners-backed Aldermore Bank; the British unit of Banco Santander; Wilbur Ross-backed Virgin Money Holdings; and Shawbrook Bank Ltd., as well as Royal Bank of Scotland Group's (RBS) Williams Glyn unit.

Lloyds had originally been looking to sell 25% of the spun-off branch network, which it must shed by the end of next year to comply with a European Commission state aid ruling. But it managed to sell 35%, rising to 38.5% if the greenshoe is used. The 260 pence IPO price compares with an original price range of 220 pence and 290 pence, which Lloyds then narrowed to 250 pence to 270 pence.


"The successful initial public offering of TSB is an important further step for Lloyds Banking Group as we act to meet our commitments to the European Commission," said Lloyds CEO Antonio Horta-Osorio in a statement. "The significant investor demand for shares in TSB, which reflects investors' confidence in the prospects for the business, has meant that we have been able to set the offer size at 35%."

Lloyds will raise gross proceeds of £455 million from the sale, which, as expected, values TSB at under the valuation in Lloyds' accounts of close to £1.6 billion. But the valuation is almost double the price of up to £750 million that Co-operative Bank had arranged to pay for the 631 TSB branches before it abruptly pulled its bid in April 2013 just before regulators discovered a £1.5 billion black hole in its own accounts.

Lloyds' owns shares were down marginally, at 76.99 pence, on Friday morning in London.

Citigroup (C) and JPMorgan Chase (JPM) have been advising Lloyds on the TSB disposal and a team led by Citigroup's John Sandhu Robert Redshaw and JPMorgan's Piers Daviso, Simon Pilkington, Virginia Khoo and Charles Pretzlik are coordinating the IPO. The other banks involved in the IPO are UBS (UBS), Investec Bank, Numis Securities and RBC Capital Markets.

Rothschild's Stephen Fox and Adam Young are advising TSB.

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