Citizens Republic Bancorp Inc. ( ) has finally found a buyer in FirstMerit Corporation ( FMER - Snapshot Report ) . The two banks have reached an agreement under which Citizens will be acquired by FirstMerit in an all-stock deal valued at around $912 million, based on FirstMerit's average ten-day closing stock price ended September 12.

The deal to acquire Citizens Republic, the largest bank holding company headquartered in Michigan and the 57th largest bank holding company headquartered in the United States, offers FirstMerit significant upside potential of a stronger bank with increased vigor. In recent months, the market was rife with rumors that Huntington Bancshares Inc. ( HBAN - Analyst Report ) and Fifth Third Bancorp ( FITB - Analyst Report ) had shown interest in taking over Citizens.

FirstMerit is expected to benefit from the deal as it would strengthen its business in the Midwest. It involves complementary footprint across five contiguous Midwest States, fortifies the company’s presence in Northeast Ohio and broadens FirstMerit's reach into Michigan and Wisconsin.

On the other hand, Citizens, which suffered substantial losses during the financial crisis, has only recently recovered. However, increased regulations and stringent capital requirements along with exposures to problematic assets have been a concern.

The transaction, which is subject to customary closing conditions, including receiving the approval from regulators as well as shareholders of both the companies, is anticipated to close in the second quarter of 2013. The deal is anticipated to be significantly accretive to earnings in 2014.

As per the deal terms, the shareholders of Citizens' will get a fixed 1.37 shares of FirstMerit’s common stock for each share of Citizens' common stock. Considering the average ten-day closing stock price of FirstMerit ended September 12, this will result in a valuation of $22.50 for each of Citizens’ shares.

Following the deal closure, the combined bank can boast of around $24 billion in total assets and 415 branches, 452 ATMs and more than 5,000 employees across the five Midwest States of Pennsylvania, Ohio, Michigan, Illinois, and Wisconsin.

However, FirstMerit will have to repay the bailout money that Citizens received. FirstMerit intends to repay Citizens' $345 million of TARP preferred stock issued to the U.S. Treasury. Also, there exists the risk of integration.

Currently, both Citizens Republic and FirstMerit shares retain a Zacks #3 Rank, which translates into a short-term Hold recommendation.