Speculation about a sale of TCF Financial Corp. is stirring again, but analysts said if TCF is shopping itself, it could struggle to get a good price.
The $15 billion-asset Wayzata, Minn., company has begun approaching potential buyers after it failed earlier this year to get a high enough offer, according to an article in Sunday's Crain's Chicago Business.
The report, which cited a takeout range of $37 to $41 per share, boosted the company's stock price. It closed up 5% Monday before retreating slightly Tuesday, to $25.75.
Analysts and investment bankers said they would not be surprised if TCF has been trying to find a buyer.
"From a revenue standpoint, TCF certainly has been sluggish the last few years. I can see why management would explore the opportunities out there," said David Konrad, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "The question is, who is the buyer?"
TCF is in appealing markets, but it courts blue-collar retail customers, many of its branches are in supermarkets, and it derives about a third of its operating income from overdraft fees and other service charges, all of which could put off buyers, several observers said.
Price could be an issue as well, they said.
"From the perspective of market share and branch footprint, it would be very attractive to a number of institutions. The problem is where these branches are, how many are in supermarkets, and the price it would likely take to get this done," said Eugene Katz, a senior vice president at the investment banking firm Hovde Financial.
Scott Siefers, an analyst at Sandler O'Neill & Partners LP, said the past 10 deals nationwide in the $1 billion to $5 billion range had a median ratio of price to tangible book value of 3.53 times. He said TCF already trades at 3.90 times tangible book value.
"That metric makes it tougher to argue for a significant premium," he said.
However, he said that TCF's shares are trading at about 13 times earnings. The median multiple is 20 for the most recent deals.
"Ultimately a potential acquirer would have to weigh all those metrics and see what they would be willing to pay," Mr. Siefers said.
Mr. Konrad added that "the balance sheet is expensive because TCF relied so much on buybacks over the years," and a buyer would have to be willing to dilute its own tangible book value, he said.
The article listed Bank of Montreal's Harris Bankcorp Inc., Royal Bank of Scotland's Charter One Bank, Fifth Third Bancorp of Cincinnati, and U.S. Bancorp of Minneapolis as candidates that might be interested in TCF.
Mr. Konrad said a deal with KeyCorp would be more likely, because TCF would fill a gap in the Cleveland company's branch network and add two lucrative new markets, Chicago and the Twin Cities. Key recently had a memorandum of understanding lifted, clearing the way for it to pursue acquisitions, he said.
Mr. Konrad said that he thinks Royal Bank of Scotland would be more keen on a middle-market lender than on TCF.
The five companies mentioned as potential buyers would not discuss the matter. "We don't comment on rumor and speculation, but we do take a look at everything that comes into play," a Harris spokeswoman said.
TCF did not return a call seeking comment.
Ron Peterson, an analyst at Sterne, Agee & Leach, said margins and fee income are under pressure at TCF (as they are at many other banking companies) but TCF remains a "high performer" that could entice a buyer to pay up.
Gary B. Townsend of Friedman, Billings, Ramsey & Co. Inc. said in a research report that his analysis found TCF could fetch between $30 and $34. But he said he doubted a deal would be announced soon.
