NEW YORK — Comerica Inc. unveiled plans to buy Sterling Bancshares Inc. for $1.03 billion in stock as the regional bank once known for its Midwest presence continued to expand in the much stronger economy of Texas.
Comerica said the acquisition of Sterling, which had been reported to be for sale for the past few weeks, fit its strategy to diversify geographically in stronger areas of the country. The bank shifted its headquarters to Dallas from Detroit in 2007, a sign of the bank's confidence in Texas, which has lower unemployment and faster growing gross domestic product than much of the country.
Comerica will pay 0.2365 share for each share of Sterling, valuing the target at about $10 a share as of Friday's close. That is a 30% premium to Sterling's Friday close of $7.70.
Shares of Sterling leapt 17.8% to $9.07 in early trading while Comerica slumped 6.9% to $39.36.
The acquisition is the latest bank merger in what's expected to be a wave of consolidation in an industry many think is overcrowded. With costs rising thanks to new regulations, and many banks struggling to return to profitability, the expectation is some banks will find it easier to sell than continue.
Comerica also reported a bigger-than-expected profit for the fourth quarter Tuesday morning. Average loans in Texas rose 8%, one of the stronger areas in the bank's results. The results were also boosted by setting aside less to cover loan losses.
Comerica has improved its results in recent quarters by decreasing the amount of money it sets aside for potential loan losses. It swung to a profit early last year and beat the vast majority of its competitors to raising its dividend, which has boosted shares, up 20% over the past 12 months.
In the latest quarter, loan-loss provisions were $57 million, down from $256 million a year earlier and $122 million in the prior quarter. That helped Comerica post a profit of $96 million, or 53 cents a share, compared with a prior-year loss of $29 million, or 42 cents a share. Analysts polled by Thomson Reuters had forecast earnings of 31 cents.
Revenue edged up 1.6% to $620 million, topping the $591 million analysts expected.
Sterling Bancshares, meanwhile, reported its fourth-quarter profit increased to $1.9 million from $1.7 million and was flat on a per-share basis at 2 cents, matching analysts expectations.
Both Sterling and Comerica had already returned government funds from the Troubled Asset Relief Program and were turning profits again.
Sterling, though, found itself facing a shareholder activist fight from its largest holder, TAC Capital LLC. TAC, run by Don Adam and owner of a 9.9% stake, sent a letter to Sterling in November saying it would nominate five people for seats on Sterling's board. The letter said it was "frustrated with the continued poor performance" of shares.
That opened the door for Sterling to sell, with Comerica and BB&T Capital Corp. (BBT) among the rumored buyers.
Comerica Chief Executive Ralph W. Babb said on a conference call with analysts the deal was "very appealing" as it nearly doubled Comerica's presence in Houston and gave it a foothold in San Antonio.
Jefferies analysts said in a report, "while we like the move to broaden its exposure to Texas, investors may question the price paid."
The combined entity would be the No. 6 deposit holder in Texas with $9.37 billion in deposits, Comerica said. Texas will now make up one fifth of Comerica's revenue, though the Midwest still dominates with 40% of revenue.
Comerica expects the deal to close in the middle of 2011 and be accretive after the first year. It will cut about $56 million from Sterling's expenses, or 35% of its costs.
Chief Financial Officer Beth Acton said on the call most of those cost savings will happen in 2012 and that "people is one aspect."
