(Reuters) - U.S. retirement plan administrator Principal Financial Group said on Tuesday it would buy Wells Fargo & Co’s retirement plan services business for $1.2 billion, as it seeks a larger presence in markets serving mid-sized companies.

FILE PHOTO: A Wells Fargo ATM machine is shown in Los Angeles, California, U.S., October 19, 2018. REUTERS/Mike Blake/File Photo

The move, first revealed last month by Reuters, marks the latest divestment from Wells Fargo, which has been streamlining its business as it grapples with the fallout of customer abuse scandals.

Combining the Wells Fargo and Principal businesses will create one of the largest U.S. retirement services providers, with 7.5 million customers, the companies said in separate statements announcing the deal.

The agreement also includes a provision for payments worth up to $150 million from Principal to Wells Fargo that are tied to exceeding revenue retention targets. These would be triggered two years after closing, which is likely in the third quarter, Principal Financial said.

"Principal will gain a strong foothold with mid-sized employers as more than two-thirds of Wells Fargo's institutional retirement assets are in plans ranging from $10 million to $1 billion," the company said. reut.rs/2uRbzQ2

The deal, to be financed with cash and between $400 million and $500 million of debt, will add to Principal’s net income and adjusted earnings per share in 2020. The company said in a separate presentation that its share buybacks would be suspended, resuming no later than the first quarter of 2020.

The buyback news weighed on Principal’s stock, which was 2.5 percent lower in afternoon trading on Nasdaq. Wells was down 1.4 percent.

Once the unit is fully integrated in 2022, Principal said it could see annual net revenue of around $425 million, and pre-tax return on net revenue of 28 percent to 32 percent.

The Des Moines, Iowa-based company will take over Wells’ contribution, benefit, executive deferred compensation, employee stock ownership plans, institutional trust and custody and institutional asset advisory businesses.

Wells Fargo has been looking to trim its business since it came under regulatory scrutiny following a sales practice scandal. In 2018, the Federal Reserve slapped it with an unprecedented asset cap, citing “widespread consumer abuses and compliance breakdowns.”

The bank is scheduled to announce its first-quarter results on Friday.

Lazard is the financial adviser to Principal, while Debevoise & Plimpton provided legal counsel. Skadden, Arps, Slate, Meagher & Flom LLP served as Wells Fargo’s legal adviser.