CHICAGO - Boosting its Chicago franchise, Michigan's Old Kent Financial Corp. on Tuesday agreed to buy a $534 million-asset bank operating in the Windy City's western suburbs.
Old Kent, based in Grand Rapids, said it would purchase EdgeMark Financial Corp., Countryside, Ill., in a stockswap transaction valued at $62 million. The price equals 1.87 times EdgeMark's book value and 15.3 times its annualized earnings for the first nine months.
The $9.5 billion-asset Old Kent is at the top of its game, reporting a 1.45% return on assets in the third quarter. On the other hand, EdgeMark is limping, posting a 0.84% ROA.
B.P. Sherwood 3d, a vice chairman at Old Kent, said the deal would boost the company's Chicago operations to 28 offices and $2.1 billion of assets. He said Old Kent was "anxious" to make further acquisitions in theChicago banking market.
After merger consolidations are completed, Old Kent anticipates an annual cost savings of $7 million, Mr. Sherwood said, a sum equaling 29% of EdgeMark's annual non-interest expense.
The buyout is set to close in the second quarter, and Mr. Sherwood said it would enhance Old Kent's earnings per share by 5 cents, beginning 12 months after the papers are signed.
Subsequent to the deal's closing, Old Kent will purchase in the open market an identical number of shares issued in the transaction. The arrangement will have the leveraging effect of a cash purchase because it uses Old Kent's oversized capital base to buy the stock.
At the same time, selling shareholders who receive new stock can decide whether to sell those shares immediately, and pay taxes on the capital gain, or put off the tax hit by holding onto the equity.