Shore Bancshares, the holding company of Shore United Bank, and Severn Bancorp, the holding company of Severn Savings Bank, entered into a definitive agreement under which Severn will merge with and into Shore in a stock and cash transaction valued at approximately $146 million (including common stock and stock options), or $11.30 per share of Severn common stock based on a closing price for Shore’s common stock of $15.64 as of March 2, 2021, and $1.59 per share in cash. Shore expects the transaction to be more than 30% accretive to EPS in 2022 based on anticipated cost savings of approximately 35%.
Severn is headquartered in Annapolis, MD, and has $952.6 million in total assets, $679.2 million in gross loans and $806.5 million in total deposits as of Dec. 31, 2020. Severn operates seven banking offices located in Anne Arundel County, MD. The transaction will increase Shore’s total assets to approximately $2.9 billion on a pro forma basis as of Dec. 31, 2020.
“The addition of Severn to our organization is very exciting,” Lloyd L. “Scott” Beatty, president and CEO of Shore, said. “We will now have a presence in Anne Arundel County, which is a wonderful market and fills in a gap in our footprint. The merger also brings new products and talent to our organization.”
“It is an opportunity for Severn to join forces with a larger organization and remain committed to community banking,” Alan Hyatt, president and CEO of Severn, said. “We look forward to the opportunities and benefits this combination will bring to our shareholders in terms of prospects for future earnings growth, immediate dividend pick-up and diversification, as well as to clients, employees and the many communities we serve.”
Under the terms of the definitive agreement, which was unanimously approved by the boards of directors of both companies, holders of Severn common stock will have the right to receive 0.6207 shares of Shore common stock and $1.59 in cash for each share of Severn common stock they own. Since the exchange ratio will be fixed at 0.6207, the common stock value of the consideration will float with Shore’s stock price. The cash portion of the consideration will be fixed at $1.59 per share.
Existing Shore shareholders will own approximately 59.6% of the outstanding shares of the combined company and Severn shareholders are expected to own approximately 40.4%. Shore will appoint four Severn directors to the Shore board, including Hyatt. Beatty will continue as CEO of the combined company and Hyatt will serve as chairman of the board of directors.
The transaction is expected to close in Q3/21, subject to satisfaction of customary closing conditions, including regulatory approvals and shareholder approval from Shore and Severn shareholders. Severn directors, executive officers and certain shareholders have entered into agreements with Shore to vote their shares of Severn common stock in favor of the merger of Severn with and into Shore. Shore directors and executive officers have entered into agreements with Severn to vote their shares of Shore common stock in favor of the issuance of shares of Shore to Severn shareholders in the merger.
Janney Montgomery Scott acted as financial advisor to Shore in this transaction and delivered a fairness opinion to the board of directors of the company. Holland & Knight served as legal counsel to Shore. Piper Sandler acted as financial advisor to Severn and delivered a fairness opinion to the board of directors of the company. Luse Gorman served as legal counsel to Severn.