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Huntington-FirstMerit Merger Deal Gets Shareholders' Nod

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Huntington Bancshares Incorporated’s (HBAN - Free Report) deal to acquire Akron, OH-based FirstMerit Corporation has been approved by the shareholders of both the companies. The banks expect the deal to close by the third quarter of 2016, after getting regulatory consent and the fulfillment of customary closing conditions.

Stephen D. Steinour, chairman, president and CEO of Huntington said, “Today marks an important milestone as we continue to proceed smoothly with the merger process of combining Huntington and FirstMerit.”

Transaction Details

Huntington, in Jan 2016, inked a $3.4-billion merger deal with FirstMerit to gain the largest deposit market share in Ohio. The merged entity will operate through an eight-state franchise in the Midwestern market, with over $100 billion in assets.

Per the terms of the deal, FirstMerit’s shareholders will receive $5.00 in cash and 1.72 shares of Huntington common stock for each FirstMerit share. Based on the closing price of Huntington’s stock on Jan 25, per share consideration is valued at $20.14.

Excluding one-time merger related charges, Huntington expects the deal to be incremental to its 2017 earnings. Further, upon realization of anticipated merger synergies, the transaction will drive 10% earnings accretion in 2018.

On a fully phased-in Basel III basis, pro-forma tangible capital equity to tangible assets is projected to be 7.1% at closing, while pro-forma regulatory common equity Tier 1 ratio is anticipated to be 8.7% at closing.

However, the transaction is expected to dilute Huntington’s tangible book value by 12%, and the company expects to recoup the capital over a period of five and a half years. Additionally, the company has suspended its share repurchase program until the closure of the deal.

Road Ahead

The deal will enable Huntington to foray into the attractive markets of Illinois and Wisconsin. Also, this will boost the company’s footprints in Michigan and Pennsylvania.

Given its strong balance sheet position, Huntington has remained an active acquirer. Over the past two years, the company has acquired Australia-based Macquarie Equipment Finance, Inc., Camco Financial Corp. as well as branches in Michigan from Bank of America Corp. (BAC - Free Report) .  

Looking forward, we believe Huntington will continue its inorganic growth strategy, enhancing profitability amid margin pressure and rising expenses.

Currently, FirstMerit holds a Zacks Rank #2 (Buy), while Huntington carries a Zacks Rank #3 (Hold). Another finance stock worth a look is Wintrust Financial Corp. (WTFC - Free Report) , sporting a Zacks Rank #1 (Strong Buy).

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