The Texas holding company Hilltop Holdings (HTH) has made an unsolicited bid to buy the remaining shares in SWS Group that it does not already own.
In a letter to SWS' board Friday, the $9 billion-asset Hilltop offered to pay $7 for each outstanding share, or a 16% premium over SWS' closing price Thursday. Hilltop, based in Dallas, invested $50 million in SWS in 2011 and beneficially owns 24% of its common stock.
Under terms of the proposed offer, Hilltop would buy the remaining shares using 50% cash and 50% Hilltop common stock.
"We believe that our proposal offers compelling value for SWS stockholders, as it provides a premium to market, immediate and certain value with the cash consideration and the opportunity to participate in the success of the combined company through our stock," Hilltop Chairman Gerald J. Ford wrote in the letter.
Also based in Dallas, SWS is the parent of Southwest Securities FSB, a $1.6 billion-asset thrift with nine branches in Texas and two in New Mexico. In a news release, the company said it is reviewing the proposal and is advising its shareholders "to take no action at this time."
In heavy trading, SWS' shares were up more than 20% midday Friday, to $7.29. Hilltop's shares were up nearly 7%, to $25.03.
Hilltop is a financial holding company set up to buy banks. It bought PlainsCapital Bank in November 2012 and in September 2013 it acquired the $3 billion-asset First National Bank in Edinburg, Texas and merged it into PlainsCapital.
If SWS accepts the offer, the resulting bank would be the fourth-largest in Texas by deposits.
In the letter, Ford said that Hilltop's and Southwest's business lines are "highly complementary" and that the company's shareholders would benefit from being part of a larger organization. Hilltop has four business segments: banking, mortgage origination, financial advisory, and insurance.
In 2011 Ford joined the SWS Board of Directors and his son, Hilltop President and Chief Executive Officer Jeremy B. Ford, became a non-voting observer to the SWS board.
Apart from requiring approval from SWS' board and shareholders, the proposed transaction would require the consent of Oak Hill Capital Partners with regards to existing debt and related agreements with SWS.