Wall Street analysts didn’t take long to fire shots across the bow of the deal announced this morning by Fifth Third Bancorp and MB Financial who have signed off on a definitive merger agreement valued at approximately $4.7-billion.
Jefferies analyst Ken Usdin and Fig Partners were just two of the early responders to the joint announcement which will see Chicago-based MB Financial merged into Fifth Third under a plan that has roughly 90-percent of the consideration coming in the form of stock with the balance in cash.
Based on the closing price of Fifth Third’s common shares last Friday, May 18, 2018, common shareholders of MB Financial will receive $54.20 of total consideration, consisting of 1.45 shares of Fifth Third common stock and $5.54 in cash for each share of MB Financial common stock. The consideration implies a premium of approximately 24-percent to MB Financial’s closing share price on Friday. In conjunction with the closing of the transaction, two members of MB Financial’s Board of Directors are expected to join the Fifth Third Bancorp Board.
Chicago’s MB Financial is the holding company for MB Financial Bank, N.A. MB Financial has approximately $20 billion in assets with a history of successfully serving the Chicago market for more than 100 years. MB Financial is well recognized as a leader in serving middle-market customers, for its strong deposit franchise, and for its customer centric corporate culture.
The merger will result in a total Chicago deposit market share of 6.5-percent, ranking the combined company fourth in total deposits in the Windy City and second in estimated retail deposits among the nearly 200 banks in the marketplace. Additionally, the combined company will have a 20-percent share of middle market relationships in Chicago, ranking it second.
Fifth Third Chairman, President & CEO Greg Carmichael says, “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.”
Carmichael notes, “In addition to its strategic importance, this merger is expected to drive significant financial benefits. We expect our investment to generate an IRR of approximately 18.5-percent and to be accretive to our operating EPS in the first year, with accretion of nearly 7-percent in the second year, once cost savings are fully realized. Furthermore, we not only expect the merger to accelerate our progress towards our NorthStar financial targets but also raise them above our previous guidance.”
Regarding the deal to gain market share in the Chicago region, Carmichael says, “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.”
Mitchell Feiger is President & CEO at MB Financial. He says, “Teaming up with Fifth Third allows us to leverage our complementary capabilities for the benefit of our customers and the communities we serve.” Feiger adds, “I am very excited to lead the combined organization in Chicago. Our commercial expertise and strong credit culture complement the strengths of Fifth Third in large corporate lending, capital markets, wealth management and the payments business. Both organizations are committed to a successful integration.”
Feiger cited similarities of culture between the two, saying, “We both have a history of keeping the customer at the center of all we do and improving lives in the communities we serve. We are proud that both Fifth Third and MB Financial have received ‘Outstanding’ performance evaluations under the Community Reinvestment Act.”
Over the last two years, Fifth Third has invested $1.9 billion in the Chicago region, ahead of the originally planned pace of its five-year Community Commitment. As a result of the combination, Fifth Third plans to further increase its Chicago area commitment, after consultation with its Community Advisory Forum.
The transaction is expected to reduce Fifth Third’s regulatory common equity Tier 1 ratio by approximately 45 basis points. The pro forma tangible common equity to tangible assets ratio of the combined entity is projected to be 8.2-percent at closing.
Fifth Third intends to complete its 2017 CCAR buyback plan by repurchasing up to $235 million of its shares of common stock before the beginning of the proxy solicitation in connection with the MB Financial shareholder vote on the transaction, and, subject to regulatory approvals, may repurchase additional shares after the vote. The timing and amount of this repurchase activity is subject to market conditions and applicable securities laws.
The transaction is subject to the satisfaction of all customary closing conditions, including regulatory approvals as well as the approval of MB Financial shareholders.
Citi served as financial advisor and Simpson Thacher & Bartlett LLP served as legal advisor to Fifth Third. Sandler O’Neill + Partners served as financial advisor and Silver Freedman, Taff & Tiernan LLP and Vedder Price served as legal counsel to MB Financial.
