BancorpSouth of Tupelo, Miss., said it has agreed to merge with First United Bancshares of Arkansas in a deal that would create a regional powerhouse stretching from Tennessee to Texas.
The $5.8 billion asset financial services company said Monday that it would pay $455 million for El Dorado-based First United. The combined company would be the largest based in Mississippi, with $8.6 billion of assets, $7.25 billion of deposits, and more than 230 branches in six states.
The transaction price was based on BancorpSouth's $16 closing stock price on April 14 and values each First United share at $18, a 43% premium of its closing price the same day. First United shares closed at $15.75 Monday, up almost 25% from Friday's close of $12.625.
The pooling-of-interests deal, which observers say is fairly priced at 1.75 times book value, would give BancorpSouth access to new markets throughout Arkansas, Louisiana, and eastern Texas.
"The map is an impressive issue in this," said James V. Kelly, chairman, president, and chief executive of First United, who noted that the markets are contiguous and would have no overlap. Combined, the new company would have operations in Alabama, Arkansas, Louisiana, Mississippi, Tennessee, and Texas.
In addition to being compatible geographically, the companies are also aligned structurally, Bancorp chairman and chief executive officer Aubrey B. Patterson said. "We have great similarities in philosophy and style of management - we are very close to the communities we serve," he said.
BancorpSouth is the holding company of BancorpSouth Bank. Mr. Patterson said the parent company expects to leverage First United's branch network to market its product lines, including its insurance agency, broker-dealer operations, and credit card and cash management services.
Mr. Patterson would be chairman and CEO, while Mr. Kelly would be president and chief operating officer of BancorpSouth. The company's board would have 13 members, four from First United.
BancorpSouth said it was attracted to First United's markets and its large branch network. The company has 11 affiliate banks with 69 locations and a nonbank subsidiary, First United Trust Co. Each of the units would operate as a BancorpSouth bank.
Joseph Roberto, an analyst at Keefe, Bruyette & Woods in New York, said that by entering new markets, Bancorp would gain much-needed geographic diversification. After the merger, the company would be "a lot more than just Mississippi, and that's a positive," he said.
Jeff Davis, an analyst at J.C. Bradford & Co. in Nashville, agreed that the purchase price is fair but said it is further evidence that the days of banks paying three or four times book value are over.
"Those multiples would have been considered insulting two years ago," he said.
BancorpSouth said it expects to incur related restructuring expenses of approximately $20 million and that the deal should be accretive to 2001 earnings.
The transaction is subject to shareholder and regulatory approval and is expected to close in the third quarter.
