Fifth Third's MB Financial Buyout Approved By Shareholders
Fifth Third Bancorp 's FITB plan to acquire Chicago based MB Financial, Inc. MBFI has gained steam, after MB Financial's common shareholders accorded their assent to the agreement. The deal is now subject to customary closing conditions, which includes certain regulatory approvals, and is expected to complete by the first quarter of 2019.
Fifth Third's shares have gained 3.3% post MB Financial's announcement of receiving shareholders' approval for the deal. However, the company's share price has declined 11% since it made the announcement of the proposed acquisition in May. This is mainly because, investors found the deal price to be a little expensive, considering that it was priced at a premium of around 24% to MB Financial's share price as of May 21.
Notably, MB Financial's preferred shareholders' votes did not account for two-thirds of the total votes casted in favor of the merger. As a result, now the company will not be merged into Fifth Third's existing subsidiary and instead will become an independent subsidiary.
Terms of the Deal
In May 2018, Fifth Third entered into a stock-cash acquisition deal with MB Financial to acquire MB Financial for $4.7 billion.
Per the agreement, Fifth Third will pay 1.45 of its common stock and $5.54 in cash for each share held in MB Financial, upon conclusion of the agreement. It results in total consideration of $54.20 per share, which is based upon Fifth Third's stock price as of May 18.
Benefits of the Deal
Cincinnati-based Fifth Third has been focused on expanding operations in Chicago. In fact, it invested $1.9 million in Chicago over the last two years. Therefore this acquisition will supplement the company's efforts to gain market share in the highly competitive Chicago region.
Moreover, the investment is expected to generate an internal rate of return of 18.5% and to be accretive to operating EPS in the first year itself, followed by 7% accretion in the subsequent year.
With around $20 billion in assets and experience of more than 100 years, MB Financial's expertise and reach in Chicago will enhance Fifth Third's profitability. In fact, the combined entity will form the fourth largest bank in Chicago, in terms of deposits, with a market share of 6.5%.
In conclusion, Fifth Third's growth prospects look promising, owing to its initiatives. The company's share price rose 8.1% over the past year compared with 11.8% growth recorded by the industry .
Currently, Fifth Third carries a Zacks Rank #3 (Hold).
Among other banks, Comerica Incorporated CMA and U.S. Bancorp USB are worth considering. Both stocks presently carry a Zacks Rank of 2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Over the last 60 days, the Zacks Consensus Estimate for Comerica' current-year earnings has inched up 0.9%. Its share price has gained 29% in the past year.
U.S. Bancorp's earnings estimates for 2018 have been revised slightly upward over the past 60 days. Its shares have rallied 3.1% in a year's time.
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