Prosperity Bancshares Inc. in Houston continued its steady march across Texas on Wednesday, announcing a deal to buy the $1.8 billion-asset Texas United Bancshares Inc. in La Grange for $357 million.
The deal, Prosperity's 16th since 2000, is the largest in its 23-year history. Buying Texas United would make it the third-largest bank holding company in Texas and significantly boost its market share in two of the state's most vibrant areas, Dallas and Austin.
Analysts say it also could make Prosperity, already on the short list of Texas takeover targets, even more attractive to potential buyers. This year four of Texas' publicly traded banking companies - including Texas United - have announced plans to sell themselves, and Prosperity would be one of just nine left.
Texas United's deal to sell itself ended months of speculation about its future. Its stock has risen more than 70% this year, largely on takeover rumors, and recent news reports had even named Prosperity as a potential buyer.
On Wednesday, Texas United's stock rose 1.83%, to close at $31.24. Prosperity's stock fell 1.58%, to close at $32.44.
The deal is expected to close early next year. Prosperity is currently Texas' fifth-largest commercial bank holding company; buying Texas United would increase its asset total to nearly $7 billion and its branch total to 131.
L. Don Stricklin, Texas United's president and chief executive, said in an interview that it made the deal at a logical time, because it was just beginning the process of consolidating its four banks into one. It is now putting that process on hold, so customers do not have to go through one change now and another when its banks are merged into Prosperity.
Though the price is high - 4.62 times Texas United's tangible book value - several industry watchers said the seller might have accepted a slightly lesser offer, because they believe Prosperity eventually will sell itself.
Mr. Stricklin said such a scenario "was in the back of my mind but not a driver" of the decision to sell.
The deal makes sense because the companies have similar growth strategies, are in similar markets, and have similar loan portfolios, he said. "We looked at it from a business standpoint," he said. "How would it make the best sense to run the business?"
David Zalman, Prosperity's chairman and chief executive, said in a press release, "This merger significantly advances our goal to be recognized as a true Texas franchise. We will have 131 locations within the area of the state's greatest population and wealth concentration."
Some analysts questioned if Prosperity was ready for another acquisition so soon after its largest one to date. In April it bought the $880-asset SNB Bancshares Inc. in Sugar Land for $239 million.
But Dan Rollins, Prosperity's president and chief operating officer, said that the SNB integration was completed May 1, and he sees no reason why it would hinder the Texas United acquisition.
Adam Barkstrom, a managing director with Stifel Nicolaus & Co. Inc., said that given what buyers are paying in Texas these days, he had expected Texas United to fetch an even higher price. On July 3, the $12 billion-asset Cullen/Frost Bankers Inc. of San Antonio announced plans to buy the $1.1 billion-asset Summit Bancshares Inc. of Fort Worth for about $366 million in cash and stock, or almost five times its tangible book value.
"The Texas United guys wanted to sell to Prosperity because they think there might be room for a double dip somewhere down the road," Mr. Barkstrom said.
Brent Christ, an analyst with Fox-Pitt Kelton Inc. in New York, said the deal would increase the value of remaining banks. It also "takes Prosperity off the list as a potential takeover target for the very near term, but people still see them as a seller eventually."
