The Canadian bank said Monday it will pay a total of USD $2.8 billion for a 14.9% stake in the company in two phases.
The deal significantly increases Scotia's use in key markets, CEO Scott Thomson said in a statement.
“We believe this transaction provides attractive near-term benefits to our shareholders and creates a future choice for Scotiabank in the North American corridor.”
The “Surprise deal” will increase Scotiabank's North American exposure
The bank announced a “renewed” corporate strategy last December that included withdrawing new spending from Latin American countries as it focused resources closer to home.
The deal with KeyCorp gives it a bigger foothold in the US, where other Canadian banks are also expanding their presence.
Under the agreement, Scotiabank will acquire its stake through the issuance of a total of 163 million KeyCorp common shares in two tranches at a price of USD$17.17 per share.
National Bank analyst Gabriel Dechaine said the surprise deal is expected to add value and increase its exposure to North America. But he thinks investors expected Scotiabank to pull back from the buyout, and that any plans by the bank to increase its stake in KeyCorp could reduce the ability to spend money elsewhere, such as buybacks.
Banks said Scotiabank will make an initial investment of USD $800 million for a 4.9% stake expected to close in the fourth quarter, subject to regulatory approvals.
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