Fifth Third and MB Financial signed a definitive merger agreement under which MB will merge with Fifth Third in a transaction valued at approximately $4.7 billion. Approximately 90% of the consideration will be in stock with the rest in cash.
Based on the closing price of Fifth Third’s common shares on May 18, 2018, common shareholders of MB Financial will receive $54.20 of total consideration, consisting of 1.45 shares of Fifth Third common stock and $5.54 in cash for each share of MB Financial common stock. The consideration implies a premium of approximately 24% to MB Financial’s closing share price on May 18, 2018. In conjunction with the closing of the transaction, two members of MB Financial’s board of directors are expected to join the Fifth Third Bancorp board.
Chicago-based MB Financial is the holding company for MB Financial Bank. MB Financial has approximately $20 billion in assets. The merger will result in a total Chicago deposit market share of 6.5%, ranking the combined company fourth in total deposits and second in estimated retail deposits among the nearly 200 banks in the marketplace. Additionally, the combined company will have a 20% share of middle market relationships in Chicago, ranking it second.
“There were no other potential partners of the same caliber as MB Financial in the Chicago market, and we are very pleased to reach an agreement to merge our companies. We view MB Financial as a unique partner in our efforts to build scale in this strategically important market. Customers of both banks will benefit from greater convenience and the complementary capabilities that our banks, together, can offer,” said Greg D. Carmichael, chairman, president and CEO of Fifth Third Bancorp.
“In addition to its strategic importance, this merger is expected to drive significant financial benefits. We expect our investment to generate an IRR of approximately 18.5% and to be accretive to our operating EPS in the first year, with accretion of nearly 7% in the second year, once cost savings are fully realized. Furthermore, we not only expect the merger to accelerate our progress towards our NorthStar financial targets but also raise them above our previous guidance.
“This merger also allows us to leverage MB Financial’s talented management team. That begins with the selection of Mitch Feiger as chairman and CEO for our Chicago region, and we expect it to include other key members of the MB Financial leadership team. On a combined basis, we will have the best talent in the market,” Carmichael added.
“Teaming up with Fifth Third allows us to leverage our complementary capabilities for the benefit of our customers and the communities we serve,” said Feiger, president and CEO of MB Financial. “I am very excited to lead the combined organization in Chicago. Our commercial expertise and strong credit culture complement the strengths of Fifth Third in large corporate lending, capital markets, wealth management and the payments business. Both organizations are committed to a successful integration. We both have a history of keeping the customer at the center of all we do and improving lives in the communities we serve. We are proud that both Fifth Third and MB Financial have received ‘Outstanding’ performance evaluations under the Community Reinvestment Act.”
Over the last two years, Fifth Third has invested $1.9 billion in the Chicago region, ahead of the originally planned pace of its five-year community commitment. As a result of the combination, Fifth Third plans to further increase its Chicago area commitment, after consultation with its community advisory forum.
The transaction is expected to reduce Fifth Third’s regulatory common equity Tier 1 (CET1) ratio by approximately 45 basis points. The pro forma tangible common equity to tangible assets (TCE) ratio of the combined entity is projected to be 8.2% at closing.
Fifth Third intends to complete its 2017 CCAR buyback plan by repurchasing up to $235 million of its shares of common stock before the beginning of the proxy solicitation in connection with the MB Financial shareholder vote on the transaction, and, subject to regulatory approvals, may repurchase additional shares after the vote. The timing and amount of this repurchase activity is subject to market conditions and applicable securities laws.
The transaction is subject to the satisfaction of all customary closing conditions, including regulatory approvals as well as the approval of MB Financial shareholders.
Citi served as financial advisor and Simpson Thacher & Bartlett served as legal advisor to Fifth Third. Sandler O’Neill + Partners served as financial advisor and Silver Freedman, Taff & Tiernan and Vedder Price served as legal counsel to MB Financial.