Shares of Minnesota-based retail and commercial banking company TCF Financial (TCF 22.94, +1.36, +6.30%) move decently higher on Monday after news that the company and Detroit-based banking company Chemical Financial Corp. (CHFC 45.39, +2.92, +6.88%) announced the two parties would combine in an all-stock merger of equals.
The combined company, which is destined to garner some $45 bln in assets and $34 mln in total deposits across the Midwest, will have a significant foothold in the greater-Minneapolis, Midland, and greater-Chicago areas (among others) and will be headquartered in Detroit. Recall that, in July 2018, Chemical announced plans to move its headquarters from Midland to Detroit with the construction of a new development building with plans to add more than 500 employees to the city’s workforce.
Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, TCF will merge into Chemical, and the combined holding company and bank will operate under the TCF name and brand following the closing of the transaction.
Per the deal’s terms, TCF shareholders will receive 0.5081 shares of Chemical common stock for each share of TCF common stock based on a fixed exchange ratio, equivalent to $21.58 per TCF share based on the closing price as of January 25, 2019. Each outstanding share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock of TCF will be converted into the right to receive one share of a newly created series of preferred stock of Chemical. Upon completion of the deal, TCF and Chemical shareholders will own 54% and 46% of the combined company, respectively, on a fully diluted basis.
The deal is projected to deliver 17% earnings per share (EPS) accretion to Chemical and 31% EPS accretion to TCF by 2020, with a tangible book value earn-back period of 2.7 years. Pro forma merged company financial metrics are based on each company’s stand-alone consensus median analyst estimates, estimated combined company cost synergies, anticipated purchase accounting adjustments, and the expected merger closing time-frame. On a pro forma basis, the business is expected to deliver top-tier operating and return metrics with cost savings on a fully-phased in basis, including:
- Return on Average Tangible Common Equity of approximately 19%;
- Return on Average Assets of approximately 1.6%, and;
- Efficiency ratio of approximately 53%.
The transaction is expected to generate around $180 mln in annual run-rate cost synergies by 2020, with minimal reductions in branches.
David Provost, current Chemical President and CEO, will become chairman of the combined bank and Tom Shafer will become president and COO of the combined bank. Craig Dahl, current President and CEO of TCF, will serve as CEO and president of the combined entity and Dennis Klaeser, current Chemical CFO and Treasurer, will serve as CFO.
Today’s merger was coupled with fourth quarter results from both TCF and Chemical. Specifically, TCF reported earnings of $0.51 for the quarter on revenues of $377.02 mln. Chemical reported earnings of $0.87 per share for the quarter on total revenues of $200.62 mln.
The deal is expected to close late in the third quarter of early fourth quarter of 2019.