Days before completing the biggest acquisition in its history, Houston-based Cadence Bancorp is sweetening the pot for investors at State Bank Financial in Atlanta.
Cadence announced late Monday it would now exchange 1.271 shares of its stock for each share of State Bank stock, up from 1.16 shares at the time the deal was announced. The move to increase the exchange ratio by 10% was necessitated by the decline in Cadence’s stock price, which has fallen more than 40% since the deal for State Bank was announced May 13.
Bank stocks have declined along with the rest of the market in recent weeks. In early trading Wednesday, Nasdaq’s bank index was down more than 29% from its 52-week high reached in June.
At the same time, the board of the $11.8 billion-asset Cadence has amended an existing repurchase authorization to buy back an additional 4.3 million shares.
Cadence's deal for State Bank is on track to close Dec. 31. The combined company would have nearly $17 billion of assets and more than 100 branches in six Southern states.
“The synergies resulting from our combined organizations will deliver significant customer and shareholder value, and positions us well for continued growth,” Cadence Chairman and CEO Paul Murphy said in a press release. “We are optimistic about our future and are pleased to welcome the State Bank team.”
Joe Evans, the chairman of the $4.9 billion-asset State Bank, said his team “continues to be excited about this partnership. We have spent a lot of time together over the last six, seven years comparing notes, comparing philosophies and believe that this combination is going to result in a very powerful regional bank. We are thrilled to be in business with Cadence.”
Brady Gailey, who covers Cadence for Keefe, Bruyette & Woods, said that the decision to boost the exchange ratio seemingly puts to rest any fears the deal may fall through at the last minute.
The net effect of Cadence’s Monday moves is relatively modest, according to Gailey, who maintained an “outperform" ratio on Cadence’s stock. Tangible book value dilution rises to about 8% from 4%, while 2020 earnings estimates fall by 5 cents, to $2.48 per share, according to Gailey.
Even after adjusting for the new exchange ratio, the drop in Cadence’s share price has trimmed the deal’s overall value, which sits now at $849 million, down from the initial estimate of nearly $1.4 billion.
After closing, Cadence and State Bank shareholders will own approximately 63% and 37% of the merged company, respectively.
