A mutual savings bank in La Porte, Ind., is doing an initial public offering so it can buy another bank — an unusual transaction that analysts said they expect to see happen more often.
LaPorte Savings Bank said late Thursday that it plans to sell a minority stake in itself, as part of its deal to buy the $137 million-asset City Savings Financial Corp. in Michigan City, Ind., for $19.8 million in cash and stock.
"We didn't have the capital to do the transaction without the IPO," said Lee A. Brady, the chief executive officer of the $267 million-asset LaPorte.
Investors, apparently eager to get in on the IPO, sent City Savings' stock soaring. It shot up more than 60% Friday, to $34.50 a share.
Though that exceeds the $34 that LaPorte has agreed to pay for each share of City Savings, investors are betting on a higher gain from the IPO, observers said.
"We are seeing record valuations of mutuals' stock prices," said Mark Fitzgibbon, the director of research at Sandler O'Neill & Partners LP in New York.
Only a handful of mutuals have done IPOs to finance immediate acquisitions.
But Mr. Fitzgibbon said that this type of transaction is likely to become more common.
"There are a lot of small to midsize banks looking to sell because they are experiencing earnings pressures," he said. "At the same time companies are doing demutualizations."
LaPorte would form a mutual holding company, which would retain 55% of the stock.
Investors in the IPO and current City Savings shareholders would own 45% of LaPorte after the public offering and acquisition are completed, either late in the third quarter or early in the fourth.
City Savings' investors could exchange each of their shares for $34 in cash, 3.4 shares of LaPorte stock, or a combination of cash and stock.
