Veritex Holdings in Dallas has agreed to buy Sovereign Bancshares in Dallas.

The $1.3 billion-asset Veritex said in a press release Wednesday that it will pay $162 million for the $1.1 billion-asset Sovereign. The cash-and-stock deal, which is expected to close in the second quarter, values Sovereign at 174% of its tangible book value.

"This merger will double our asset size as well as our number of locations," Veritex Chairman and CEO Malcolm Holland said in the release. "It significantly expands our presence in the Dallas metropolitan area and marks our entry into the Austin, Fort Worth and Houston communities."

Veritex said it will raise at least $70 million through a public offering to help pay for the acquisition. The company could raise another $10.5 million if there is enough demand. Veritex also plans to issue about $20 million in subordinated debt to redeem preferred stock Sovereign issued as part of the Small Business Lending Fund.

The company said it plans to cut about $9 million, or about 35%, of Sovereign's annual pretax expenses. There should be about $18 million in merger-related expenses.

Veritex said it expects to take less than two years to earn back any dilution to its tangible book value. The deal should be accretive to earnings per share within the first 12 months after completion.

Two Sovereign representatives will join the Veritex board.

Veritex was advised by Stephens and Norton Rose Fulbright. Sovereign was advised by Sandler O'Neill and Fenimore, Kay, Harrison & Ford.

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