Shawbrook Proposes Stock-Based Combination with Co-operative Bank
Shawbrook Group, a private equity-backed small business lender, has put forward a proposal to merge with the Co-operative Bank, according to sources. The preliminary offer suggests a stock-based combination of the two companies, with Co-operative Bank shareholders receiving approximately 29% of the combined banking group. The deal would value the Co-operative Bank at around £800m. Shawbrook has enlisted the help of Barclays as its investment banking advisor for this potential merger. While the indicative offer is not expected to lead to further discussions, Shawbrook remains interested in acquiring the Co-operative Bank and is likely to actively participate in the upcoming auction process, set to begin next month.
Significant Deal in the Banking Sector
If the merger between Shawbrook and the Co-operative Bank goes ahead, it would be one of the most significant deals in the banking sector since the 2008 financial crisis. Last year, the two companies reported a combined underlying profit of nearly £375m. The banking industry has recently experienced a boost from rising interest rates, but it has also faced challenges, such as the collapse of Silicon Valley Bank and the emergency takeover of Credit Suisse by Swiss rival UBS. Other potential bidders for the Co-operative Bank include OneSavings Bank, Aldermore, Nationwide, and Paragon Bank.
Barclays’ Role as Advisor
Barclays’ involvement as an advisor to Shawbrook is expected to rule out the bank as a bidder for the Co-operative Bank on its own. Shawbrook itself has been the subject of speculation regarding a transaction that would provide value for its private equity owners, BC Partners and Pollen Street Capital. A previous sale process for Shawbrook, which was expected to value the company at over £2bn, was abandoned due to challenging market conditions.
Relief for Regulators
A successful sale of the Co-operative Bank would be a relief for regulators, who have been involved in two rescues of the bank in the past decade. In 2013, the bank’s bid to acquire the branch network that became TSB fell apart when its own crisis came to light. It had to seek a £1.5bn rescue from American hedge funds, and its former chairman, Paul Flowers, faced public humiliation due to tabloid revelations about his personal life. The bank required another bailout from investors in 2017, with Bain Capital Credit and JC Flowers taking a 10% stake in the company. The remaining equity is owned by a syndicate of hedge funds. Previous talks of a sale to Cerberus Capital Management also failed in December 2020.
PJT Partners and Fenchurch Advisory Partners are advising the Co-operative Bank on its upcoming sale process. Shawbrook declined to comment on the matter, while the Co-operative Bank could not be reached for comment.