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Fifth Third (FITB) Set to Acquire MB Financial for $4.7B
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Fifth Third Bancorp (FITB - Free Report) , headquartered at Cincinnati, OH, entered into a stock-cash acquisition deal with Chicago, IL-based MB Financial, Inc. , under which the former will be merged with the latter, for a total value of $4.7 billion. The combined entity will form the fourth largest bank in Chicago, in terms of deposits, with a 6.5% market share.
However, shares of Fifth Third depreciated 7.93%, following the announcement, as investors’ concerns were visible on the deal value which seems to be highly priced as per market sentiments.
The merged entity will stand second in estimated retail deposits and will acquire 20% share of middle-market relationships in Chicago. However, the deal awaits meeting all customary closing conditions, including certain regulatory approvals and MB Financial shareholders’ approval.
“There were no other potential partners of the same caliber as MB Financial in the Chicago market, and we are very pleased to reach an agreement to merge our companies. We view MB Financial as a unique partner in our efforts to build scale in this strategically important market. Customers of both banks will benefit from greater convenience and the complementary capabilities that our banks, together, can offer,” said Greg D. Carmichael, chairman, president and CEO of Fifth Third.
Terms of the Deal
Per the deal, each common shareholder of MB Financial will get $54.20 of total value, based on the closing price of Fifth Third as on May 18. Notably, the total value indicates a premium of about 24% to share price of MB Financial as of May 18.
The consideration includes stock equivalent to 1.45 of per Fifth Third share and $5.54 in cash for every MB Financial share held. The deal has been agreed upon 90% stock and 10% cash.
Per the terms, two members of MB Financial’s board of directors might join the board committee of Fifth Third, on closing of the deal.
MB Financial, with about $20 billion in assets, serves middle-market customers as a leader with its strong deposit franchise, customer-centric corporate culture and commercial expertise. On completion of the merger, MB Financial’s strengths and Fifth Third’s huge corporate lending, capital markets, wealth management and the payments business will benefit customers with the complementary capabilities of both banks.
Citigroup (C - Free Report) acted as financial advisor for Fifth Third, while Sandler O’Neill + Partners acted for MB Financial.
After-Effects of the Deal
This strategic-fit deal for Fifth Third comes with some financial benefits as well. The merged entity is expected to record an IRR of about 18.5% and be accretive to Fifth Third’s operating EPS in the first year. Moreover, accretion of about 7% is expected in the second year, on realization of full cost savings.
Per Carmichael, this merger is expected to speed up achieving NorthStar financial targets and might improve the prior guidance as well.
“This merger also allows us to leverage MB Financial’s talented management team. That begins with the selection of Mitch Feiger as Chairman and CEO for our Chicago region, and we expect it to include other key members of the MB Financial leadership team. On a combined basis, we will have the best talent in the market,” Carmichael commented.
Furthermore, the deal will reduce Fifth Third’s regulatory common equity Tier 1 (CET1) ratio by nearly 45 basis points. The pro forma tangible common equity to tangible assets (TCE) ratio of the combined entity is estimated to be 8.2%.
Notably, before the MB Financial’s shareholder vote for the deal, Fifth Third plans to complete its 2017 CCAR buyback plan with the repurchase of common stock worth $235 million. Also, additional repurchase will be subject to regulatory approvals after the vote.
Bottom Line
We believe the latest acquisition is a befitting one that will support the future prospects of Fifth Third in commercial banking. Post merger, the bank will be able to cater smaller commercial clients, along with the existing large corporate clients, in the highly competitive Chicago market.
The company’s repositioning and restructuring efforts, which are still underway, help it reallocate the capital into core markets. Additionally, its focus on cost control and efforts to boost long-term profitability are anticipated to augur well.
Such moves have caused investors to become optimistic about Fifth Third's growth prospects. Notably, the company's share price rose nearly 8.7% over the last six months as compared with 7.3% growth recorded by the industry.
Among other banks, Comerica Incorporated (CMA - Free Report) is worth considering with a Zacks Rank #2 (Buy). The bank has been witnessing upward estimate revisions, for the last 60 days. Additionally, the stock climbed nearly 24.5%, over the past six months.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Fifth Third (FITB) Set to Acquire MB Financial for $4.7B
Fifth Third Bancorp (FITB - Free Report) , headquartered at Cincinnati, OH, entered into a stock-cash acquisition deal with Chicago, IL-based MB Financial, Inc. , under which the former will be merged with the latter, for a total value of $4.7 billion. The combined entity will form the fourth largest bank in Chicago, in terms of deposits, with a 6.5% market share.
However, shares of Fifth Third depreciated 7.93%, following the announcement, as investors’ concerns were visible on the deal value which seems to be highly priced as per market sentiments.
The merged entity will stand second in estimated retail deposits and will acquire 20% share of middle-market relationships in Chicago. However, the deal awaits meeting all customary closing conditions, including certain regulatory approvals and MB Financial shareholders’ approval.
“There were no other potential partners of the same caliber as MB Financial in the Chicago market, and we are very pleased to reach an agreement to merge our companies. We view MB Financial as a unique partner in our efforts to build scale in this strategically important market. Customers of both banks will benefit from greater convenience and the complementary capabilities that our banks, together, can offer,” said Greg D. Carmichael, chairman, president and CEO of Fifth Third.
Terms of the Deal
Per the deal, each common shareholder of MB Financial will get $54.20 of total value, based on the closing price of Fifth Third as on May 18. Notably, the total value indicates a premium of about 24% to share price of MB Financial as of May 18.
The consideration includes stock equivalent to 1.45 of per Fifth Third share and $5.54 in cash for every MB Financial share held. The deal has been agreed upon 90% stock and 10% cash.
Per the terms, two members of MB Financial’s board of directors might join the board committee of Fifth Third, on closing of the deal.
MB Financial, with about $20 billion in assets, serves middle-market customers as a leader with its strong deposit franchise, customer-centric corporate culture and commercial expertise. On completion of the merger, MB Financial’s strengths and Fifth Third’s huge corporate lending, capital markets, wealth management and the payments business will benefit customers with the complementary capabilities of both banks.
Citigroup (C - Free Report) acted as financial advisor for Fifth Third, while Sandler O’Neill + Partners acted for MB Financial.
After-Effects of the Deal
This strategic-fit deal for Fifth Third comes with some financial benefits as well. The merged entity is expected to record an IRR of about 18.5% and be accretive to Fifth Third’s operating EPS in the first year. Moreover, accretion of about 7% is expected in the second year, on realization of full cost savings.
Per Carmichael, this merger is expected to speed up achieving NorthStar financial targets and might improve the prior guidance as well.
“This merger also allows us to leverage MB Financial’s talented management team. That begins with the selection of Mitch Feiger as Chairman and CEO for our Chicago region, and we expect it to include other key members of the MB Financial leadership team. On a combined basis, we will have the best talent in the market,” Carmichael commented.
Furthermore, the deal will reduce Fifth Third’s regulatory common equity Tier 1 (CET1) ratio by nearly 45 basis points. The pro forma tangible common equity to tangible assets (TCE) ratio of the combined entity is estimated to be 8.2%.
Notably, before the MB Financial’s shareholder vote for the deal, Fifth Third plans to complete its 2017 CCAR buyback plan with the repurchase of common stock worth $235 million. Also, additional repurchase will be subject to regulatory approvals after the vote.
Bottom Line
We believe the latest acquisition is a befitting one that will support the future prospects of Fifth Third in commercial banking. Post merger, the bank will be able to cater smaller commercial clients, along with the existing large corporate clients, in the highly competitive Chicago market.
The company’s repositioning and restructuring efforts, which are still underway, help it reallocate the capital into core markets. Additionally, its focus on cost control and efforts to boost long-term profitability are anticipated to augur well.
Such moves have caused investors to become optimistic about Fifth Third's growth prospects. Notably, the company's share price rose nearly 8.7% over the last six months as compared with 7.3% growth recorded by the industry.
Currently, Fifth Third carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other banks, Comerica Incorporated (CMA - Free Report) is worth considering with a Zacks Rank #2 (Buy). The bank has been witnessing upward estimate revisions, for the last 60 days. Additionally, the stock climbed nearly 24.5%, over the past six months.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>