BB&T to Buy Susquehanna for $2.5B: Will it be Accretive?
Merger deals seem to gaining ground in the banking sector again. With an aim to expand its footprints in the Mid-Atlantic region, North Carolina-based BB&T Corporation (BBT) is set to acquire Susquehanna Bancshares, Inc. (SUSQ) in Lititz, PA. The cash-cum-stock transaction is valued at $2.5 billion.
Susquehanna has 245 banking branches across Pennsylvania, Maryland, New Jersey and West Virginia. With $18.6 billion in assets and $13.6 billion in deposits from Susquehanna, the deal will significantly boost BB&T’s organic growth prospects going forward.
BB&T intends to create three new banking regions that will oversee New Jersey and Pennsylvania markets. The company’s Baltimore region will be integrated into areas where Susquehanna conducts its operations. These four new banking regions will likely be under the legacy Susquehanna executives.
Further, upon the completion of the deal, Susquehanna Board members William J. Reuter and Christine Sears will join BB&T’s management team as board of directors.
Under the terms of the transaction, shareholders of Susquehanna will get 0.253 shares of BB&T and $4.05 in cash for each share. The total deal consideration is valued at $13.50 per share (based on BB&T’s average closing price over 45 days ending on Nov 10, 2014).
Further, BB&T will incur pre-tax integration and merger charges of $250 million. Nevertheless, upon closure of the acquisition (expected to be in the second half of 2015), the company will save nearly $160 million annually.
Additionally, BB&T anticipates the deal to be accretive to its earnings in the first full year excluding one-time expenses. The company also expects the deal to exceed its IRR hurdle.
The transaction, still subject to customary closing conditions, requires the approval of regulators as well as shareholders of Susquehanna. Deutsche Bank Securities Inc. served as financial advisor to BB&T, while Susquehanna was advised by Keefe, Bruyette& Woods regarding this transaction.
The news prompted a surge in Susquehanna’s share price, with the stock closing the day at $13.12, up 32.5% from the prior day’s close. However, BB&T’s share price witnessed a marginal fall of 1.7% to close at $37.67.
We believe that a drop in the share price of BB&T was possibly due to investors’ apprehension about the receipt of regulatory approvals. Following the financial crisis, regulatory scrutiny of an acquirer’s risk-management capabilities and other compliance standards has become more rigorous. Notably, BB&T is optimistic about the deal getting all the required approvals on the back of its investment in various systems and processes.
BB&T remains an active acquirer. In Sep 2014, BB&T announced a deal to take-over the Crestview Hills, KY-based Bank of Kentucky Financial Corporation (BKYF) for $363 million. This acquisition will enable the company to foray into the Northern Kentucky/Cincinnati market.
Additionally, BB&T is acquiring banking branches from Citigroup Inc. (C). The company forayed into Texas region with the acquisition of 21 branches from Citigroup in Jun 2014. This was followed by an announcement of purchasing another 41 branches in Sep 2014.
Going forward, BB&T expects to focus on integration and completion of these acquisitions rather than following any other M&A activities. Also, the company intends to expand further in Alabama, Texas and Pennsylvania, organically or through acquisitions.
We believe that with its strong capital and liquidity positions, BB&T will continue to grow. This, in turn, will aid the company’s top-line growth, which is presently under pressure owing to a low interest rate environment and lower loan demand.
Currently, BB&T carries a Zacks Rank #3 (Hold).
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