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Union First to Acquire StellarOne

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In a move to increase its footprint in Va., Union First Market Bankshares Corporation (UBSH - Free Report) announced a deal to acquire StellarOne Corporation . The all-stock deal is valued at $445.1 million.

According to the terms of the deal, shareholders of StellarOne will get 0.9739 share of Union First for each share of StellarOne. The transaction, still subject to customary closing conditions and regulatory as well as shareholders’ approvals, is expected to close by Jan 1, 2014.

Upon closure, based on financials reported as of Mar 31, 2013, the combined companies will have total assets of $7.1 billion, loans worth $5.2 billion and deposits worth $5.8 billion. Further, Union First would expand its footprint all over Va., thereby becoming the fifth largest bank based on branches.

The deal will likely boost Union First’s earnings beginning 2014 by double digits and will improve its capital ratios as well. Additionally, one-time merger related expenses of about $19.5 million after-tax are expected upon closure.

Moreover, both Union First and StellarOne are working together to cut costs and they have already planned to close nearly 10 branches. This is anticipated to lead to net expense savings of $28 million on a pre-tax basis. Furthermore, Union First plans to utilize excess capital gained from the transaction to repurchase shares over the next 2 years.

Following the completion of the deal, there will be executive changes too. Union First will increase the members of its board of directors from 11 to 19. The additional number of members will come from StellarOne.

The current StellarOne Chairman Raymond D. Smoot, Jr. will be the Chairman of the combined company while the present Union First Chairman Ronald L. Hicks will serve as Vice Chairman. The current CEO of StellarOne, O.R. Barham, will retire once the transaction gets completed.

According to the data provider SNL Financial LC, this is the third largest bank related deal announced this year. In May 2013, Chile-based Banco de Credito e Inversiones SA announced a deal to acquire Fla.-based City National Bank from Spain's Bankia SA for $882.8 million. Further in Jan 2013, United Bankshares Inc. (UBSI - Free Report) signed an agreement to buy Virginia Commerce Bancorp Inc. for $495 million.

We believe Union First will benefit from the transaction as it is becoming increasingly difficult for small regional banks to grow organically. Given the sluggish economic recovery and low rate environment, banks continue to face intense competition with regard to increasing deposits and loan balances.

Currently, both Union First and StellarOne carry a Zacks Rank #2 (Buy).

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