Cincinnati-based Fifth Third (FITB 30.86, -2.70, -8.1%) and Chicago-based MB Financial (MBFI 49.38, +5.73, +13.1%) signed a merger agreement this morning in a roughly $4.7 bln deal.
Per the deal terms MB Financial shareholders will receive $54.20 of total consideration, consisting of 1.45 shares of Fifth Third common stock and $5.54 in cash for each share of MB Financial common stock. The consideration implies a premium of about 24% to MB Financial’s closing share price on May 18, 2018.
After the deal closes MB Financial CEO Mitch Feiger will serve as Chairman and CEO for the combined company’s Chicago region. In conjunction with the closing of the transaction, two members of MB Financial’s Board of Directors are expected to join the Fifth Third Bancorp Board.
The merger will result in a total Chicago deposit market share of 6.5%. According to the companies, this market share ranks the combined company fourth in total deposits and second in estimated retail deposits among the nearly 200 banks in the marketplace. Additionally, the combined company will have a 20% share of middle market relationships in Chicago, ranking it second.
The company also broke out some key post-merger metrics on the conference call it held this morning:
- Cost savings equal to 45% of MB Financial's non-interest expense base or around $255 mln pre-tax on a fully phased-in basis
- Restructuring costs of about $300 mln after-tax
- Estimated gross credit mark of $236 mln (about 1.7% of current gross loans)
- CDI of 1.50% amortized over 10 years
- Operating EPS accretion of around 2% in 2019 and nearly 7% in 2020
- Tangible book value per share dilution of $1.43 or 7.7% with a crossover earnback of 6.8 years
- Accretive to ROA and ROTCE by about 12 basis points (bps) and about 200 bps, respectively, and reduces efficiency ratio by about 400 bps through improved operating leverage
Today’s news moves MBFI to all-time highs, while FITB’s stock (which is taking a roughly 7.7% upfront TBVPS dilution) moves to one-month lows.
Regional bank peers FRC +1.68%, CFG +1.10%, HBAN +1.06%, KEY +0.99%, STI +0.55%, MTB +0.25%, RF +0.24% trade modestly higher and the S&P Regional Banking ETF (KRE 64.63, +0.69) trades 1.1% higher.