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BancorpSouth (BXS) to Merge With Cadence (CADE) in All-Stock Deal

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With consolidations in the banking sector gaining traction, BancorpSouth Bank (BXS - Free Report) and Cadence Bancorporation (CADE - Free Report) have entered into a merger agreement. The all-stock deal will create a leading Texas and Southeastern regional bank.

Post completion, the combined entity will operate under the name and brand of Cadence with two headquarters in Tupelo, MS and Houston, TX. Also, it is expected to have a market value of more than $6 billion.

Dan Rollins, CEO at BancorpSouth said, "Cadence has built an impressive commercial banking franchise that when combined with the strengths of our team at BancorpSouth seems to be a perfect fit. This strategic merger will allow us to expand our reach and offerings with minimal overlap in our existing branch network.”

However, the deal awaits certain customary approvals by shareholders of both companies and customary regulatory approvals. The transaction is anticipated to close in fourth-quarter 2021.

Terms of the Deal

Under the terms agreed, each common shareholder of Cadence will get stock equivalent to 0.70 of BancorpSouth share. Also, they will be entitled to a one-time special cash dividend of $1.25 per share in conjunction with the closing of the merger.

Post deal, BancorpSouth shareholders will own about 55% of the combined company and Cadence shareholders will own 45%.

Notably, the company will combine the best of both brands and logos. The bank will have operations centers in Tupelo, MS and Birmingham, AL as well as specialty sites in Macon, GA; Starkville, MS; and Houston, TX.

Coming to leadership, Dan Rollins will be the Chairman and CEO and Paul Murphy will serve as Executive Vice Chairman of the combined company. The board of directors will initially comprise 20 directors, consisting of 11 from BancorpSouth and nine from Cadence.

Keefe, Bruyette & Woods served as exclusive financial advisor to BancorpSouth, while Goldman Sachs (GS - Free Report) and JPMorgan (JPM - Free Report) advised Cadence.

Financial Benefits

Both firms foresee long-term financial benefits from the transaction, which seems attractive for shareholders. The deal is likely to be 17% accretive to earnings of both companies by year-end 2022, assuming fully realized cost savings. EPS might be 14% accretive if 75% cost savings are realized.

Also, immediate accretion to tangible book value per share at close is expected. Pro forma CET 1 ratio of 11.3% and ratio of allowance for credit losses to loans of 2.5% estimated at the close of the transaction.

Our Take

In the current scenario, banks are moving toward consolidation to dodge the heightened costs of regulatory compliance and increased investments in technology in a bid to be competitive. Furthermore, the current interest-rate scenario and other economic challenges following the pandemic have taken a toll on banks’ profitability.

The merger between BancorpSouth and Cadence is expected to lead to increased growth prospects and creation of shareholder value.

Notably, shares of BancorpSouth and Cadence have rallied 42.2% and 118.2%, respectively, over the past six months.

Currently, both the stocks are carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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