Lloyds Banking Group today announced the non-binding heads of terms that it has agreed with the Co-operative Group for the sale of 632 branches, 4.2 million customer accounts (and not “customers”, as the Lloyds release has it – even a bank can’t sell people) and a £24 billion balance sheet (the “Verde” divestment).
This acquisition will cost the Co-op £350 million in initial consideration, with up to a possible £400 million in present value payable on an earn-out that runs until 2027.
The financing of that initial consideration is interesting. The Co-op is raising the £350 million through the sale of perpetual subordinated debt, underwritten by Lloyds. So in effect a form of vendor financing by Lloyds.
Lloyds has to make the Verde divestment as a condition of EU competition clearance for its disastrous 2008 acquisition of HBoS.