TD Bank Financial Group has signed a definitive agreement with The South Financial Group (TSFG) to acquire 100% of the outstanding common shares of South Financial for approximately $61m in cash or TD common stock.

Common shareholders of South Financial will have the right to elect to receive either $0.28 in cash, or 0.004 shares of TD common stock, for each outstanding TSFG common share. In addition, immediately prior to completion of the transaction, the US Department of the Treasury will sell to TD its $347 million of TSFG preferred stock and the associated warrant acquired under the Treasury’s Capital Purchase Program and discharge all accrued but unpaid dividends on that stock for total cash consideration of approximately $130.6m.

In connection with the transaction, TD’s wholly-owned subsidiary TD Bank and Carolina First Bank, which operates under the Carolina First brand in the Carolinas and the Mercantile Bank brand in Florida, are also expected to merge.

At March 31, 2010, TSFG had a total of $8bn in loans and $9.8bn in deposits ($7.8bn excluding brokered deposits). Its network of 176 stores includes a total of 66 stores in Florida, including locations in urban centers such as Miami, Tampa and Orlando, as well as 83 stores throughout South Carolina and 27 stores in North Carolina.

Upon completion of the transaction and conversion of the TSFG franchise to the TD Bank operating platform in 2011, TD Bank intends to introduce its brand, retail banking expertise and model across TSFG’s footprint. Until conversion, TSFG will continue to operate under the Carolina First and Mercantile Bank brands in the Carolinas and Florida, respectively.

Ed Clark, president and CEO of TD Bank Financial Group, said: “This transaction represents another key milestone as we continue to build out our US franchise. With the acquisition of South Financial, we’re gaining established commercial banking assets and a solid network of stores in attractive and growing markets within our Maine-to-Florida footprint.

“This acquisition will not only accelerate our growth, but it will also enable us to deepen our market share by offering an extensive suite of retail and commercial banking products to South Financial customers.”

The transaction is expected to close in TD’s third fiscal quarter of 2010, promptly following receipt of regulatory approvals and approval by TSFG’s shareholders.