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BB&T-SunTrust Merge to Form 6th Biggest Bank Truist Financial

Zacks Equity Research

In one of the biggest banking deals in over a decade, BB&T Corp and SunTrust Banks have merged to form Truist Financial Corp. The “merger of equals” all-stock deal, announced in February, created the sixth largest commercial bank in the United States (in terms of assets and deposits).

Based in Charlotte, NC, Truist Financial will start trading on the NYSE from today with “TFC” as the ticker symbol. The company will have more than $450 billion in assets, $300 billion in loans, and $320 billion in deposits, based on legacy companies’ data as of Sep 30, 2019. Nonetheless, branch and system integrations are likely to take around two years.

Last month, the transaction was approved by the Federal Reserve, the Federal Deposit Insurance Corporation and the Department of Justice’s (“DOJ”).

Notably, the DOJ consented to the deal on the condition that SunTrust will divest its 28 branches. Subsequently, SunTrust announced a deal to sell 30 branches across North Carolina, Virginia and Georgia to First Horizon National Corp. FHN. (Read more: SunTrust to Sell Branches, Gets DOJ Nod for BB&T Merger Deal)

Deal Details

Under the terms of the agreement (announced at the time when deal was inked), shareholders of SunTrust will receive 1.295 shares of BB&T for each SunTrust share they own. Thus, BB&T shareholders will own nearly 57% and SunTrust shareholders will hold roughly 43% shares of the combined company.

Further, Truist Financial will maintain the Community Banking Center in Winston-Salem, NC and the Wholesale Banking Center in Atlanta, GA.

Also, it was declared that Kelly S. King, Chairman and CEO of BB&T, would serve as Chairman and CEO of the combined company till Sep 12, 2021, after which he will be Executive Chairman till Mar 12, 2022.

William H. Rogers, Jr., Chairman and CEO of SunTrust will serve as President and Chief Operating Officer of Truist Financial till Sep 12, 2021, after which he will become CEO of the bank. Further, on Mar 12, 2022, he will become Chairman and CEO of the combined company.

Earnings Accretive; Cost Savings

While announcing the transaction, it was noted that the merger will result in earnings accretion for shareholders of both the companies. For 2021, GAAP and cash earnings per share (EPS) accretions were projected to be nearly 13% and 17%, respectively, for BB&T shareholders. For SunTrust shareholders, GAAP and cash EPS accretions were expected to be nearly 9% and 16%, respectively, for 2021.

Also, the transaction is likely to result in one-time pre-tax merger expense of roughly $2 billion. The merger will also lead to pre-tax cost savings of $1.6 billion (net of investments), which will be fully realized by 2022.

Conclusion

Following the easing of stringent finance sector regulations and lower corporate tax rate that freed up capital, there has been a rise in number of M&As. Efforts to provide enhanced digitized services and overcome competition from FinTechs also seem to play a role in increasing M&As wave in the finance sector.

The merger of BB&T and SunTrust is likely to have been driven by these factors. Though the combined company will cross the systemically important financial institutions threshold, it will lead to increased prospects and creation of shareholder value.

Also, share repurchases, which had been suspended by both companies till the deal closure, is expected to resume soon.

Further, Truist Financial, which is expected to have nearly 2,590 branches, is likely to give tough competition to some of the nation’s biggest banks like Bank of America BAC, JPMorgan JPM and Wells Fargo WFC.

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