01:16 PM EDT, 08/13/2024 (MT Newswires) -- RBC says it is "lukewarm" on Scotiabank's acquisition of a 114.9% equity interest in KeyCorp (KEY) for US$2.8 billion in cash. KEY will issue common shares at US$17.17 per share (an 11% premium to the last 20-day VWAP) to Scotiabank. Scotiabank also intends to suspend the discount on its DRIP effective after the dividend expected to be declared on August 27.

According to RBC, a minority interest stake (that is eventually added to or perhaps sold) is a tactic that Scotiabank has employed in the past, and while some might suggest that this kind of approach to deploying capital makes some sense (less financial risk), "we believe that it has not succeeded enough for BNS in the past and hence do not like it, all else equal," writes analyst Darko Mihelic.

Mihelic also does not see many opportunities for Scotiabank and KEY to "work together" and notes that "these types of arrangements are difficult and unwieldy." He adds that TD has struggled "for years to have any type of substantive arrangement with either Ameritrade or Schwab that would result in a significant return for either party."

Scotiabank is rated Sector Perform, with a $62 target.

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