BB&T Closes BankAtlantic Deal

After receiving approval from the Federal Reserve System and Federal deposit Insurance Corporation, BB&T Corporation ( BBT - Analyst Report ) and BankAtlantic Bancorp, Inc. ( BBX ) have concluded the long pending acquisition deal of the latter’s wholly-owned bank subsidiary. The closure of the deal was scheduled for November 2011, but it was delayed due to unexpected contingencies.

With this acquisition, BB&T became the seventeenth largest banking network in the U.S with consolidated assets of $178.6 billion. Now, the company would be able to expand its footprint in the coveted region of Florida with the addition of 78 BankAtlantic branches to its own network.

Terms of the Original Deal

Back in November 2011, BB&T announced that it was aiming to acquire BankAtlantic. The terms of the deal stated that the company would acquire $2.1 billion in loans and $3.3 billion in deposits (90% core and low-cost funds) for $301 million premium. This represented 9.05% of the deposits at BankAtlantic on September 30, 2011, plus the net asset value of the bank. However, deposit premiums could fluctuate, based on the amount of deposits at BankAtlantic prior to the closing of the deal, not exceeding $315.9 million.

Lawsuit Against the Deal

Immediately after the deal was announced, a group of corporate debt investors of BankAtlantic, led by Hildene Capital Management and Alesco Preferred Funding, filed a lawsuit against the firm to prevent it from selling its loans, deposits and branches to BB&T. According to the plaintiffs, this sale breaches the terms of their creditors’ agreement.

The complainants accused both BB&T and BankAtlantic of structuring the transaction in such a way that the acquirer can evade the trust preferred securities (TruPS) obligations.

The opposition forced BB&T to modify certain terms of the agreement in March 2012. The modified deal conveyed that BB&T would work as per the earlier terms, but it will assume BankAtlantic’s obligations related to the outstanding TruPS having a balance of about $285 million.

Additionally, BB&T will get 95% preferred interest in a newly established LLC, which would consist of a $423 million pool of loans and $17 million of other net assets as of January 31, 2012. BankAtlantic Bancorp will also provide BB&T with an incremental $35 million guarantee to further assure the recovery of $285 million of assumed liability

Our Take

The deal is highly advantageous to both the companies. For BankAtlantic, the agreement will likely resolve some of its balance sheet and higher operating expense related problems.

Similarly, the transaction will allow BB&T to speed up its expansion strategy in Florida region. In addition to substantially increasing the company’s market share and footprints, the acquisition would improve its top line over the medium term.

BB&T currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we also maintain a long-term ‘Neutral’ recommendation on the shares.