Tennessee-based First Horizon National Corporation FHN recently entered into a stock-cash acquisition deal with Lafayette, LA-based IBERIABANK Corporation IBKC, per which the former will merge with the latter in an all-stock merger of equals. The combined entity will operate under the name of First Horizon headquartered in Memphis, TN, and maintain its operating presence in all the existing markets of both companies.
The deal, approved by board of directors of both banks, on completion will be listed as one of the largest financial service companies, headquartered in the South, along with inclusion in the top 25 banks in the United States, in terms of deposits.
The combined entity is aimed at capturing market opportunities and boosting the client base. Moreover, the companies’ expanded scale, technological advancement and increased product offerings will help capitalize its market share.
However, the deal awaits certain customary approvals by shareholders of both companies. The transaction is anticipated to close in second-quarter 2020.
Bryan Jordan, Chairman and CEO of First Horizon, said, “Our merger of equals with IBERIABANK is an exciting milestone and the logical next step in the continued successful transformation of our company. Separately, we are both formidable organizations with strong track records, great businesses and talented bankers. Together, First Horizon and IBERIABANK will create a powerful new company driven by our shared commitment to our customers, communities, shareholders and the employees we serve. We are pleased to have a partner with a complementary people-focused culture, shared values and a growth-oriented business model. Our combined new scale, deep experience in financial services and diverse business mix in the South uniquely position us to accelerate our growth and create lasting shareholder value.”
Terms of the Deal
Per terms of the deal, each common shareholder of IBERIABANK will get stock equivalent to 4.584 of First Horizon shares for every IBERIABANK share held. Specifically, IBERIABANK shareholders in total will own about 44% of the combined entity, while shareholders of First Horizon will own 56%.
Further, shareholders of IBERIABANK will be entitled to a 43% increase in dividend after closing of the deal, subject to both companies’ current dividend per share.
First Horizon, with around $44 billion in assets, and IBERIABANK, with $31 billion in assets, will create the combined entity with $75 billion in assets, $57 billion in deposits and $55 billion in loans. Strategically, the combined entity will enhance through advanced technologies, innovative products and create a competitive edge in the Southern market.
Also, the combination will cater various commercial, consumer and small business clients with diversified products. On completion, First Horizon and IBERIABANK, maintaining the strong working cultures, aim to offer superior client services.
Members from both First Horizon and IBERIABANK will lead the combined entity. The organization’s board of directors will include nine directors from First Horizon and eight directors from IBERIABANK. IBERIABANK president and CEO Daryl Byrd will lead as executive chairman of board of directors and D. Bryan Jordan as chief executive officer of the new entity.
Pre-tax cost synergies are anticipated to approximate around $170 million on annual run-rate cost savings, including redundancies in overhead, bank branches, operations and computer services.
Per First Horizon’s expectations, the deal is likely to be 16% accretive to earnings by year-end 2021, while around 22% EPS accretion is projected for IBERIABANK.
The combined entity is likely to record operating and return metrics with cost savings on fully-phased in basis. Notably, return on average tangible common equity is likely to approximate 18%, while return on average assets is projected at 1.4%. Lastly, efficiency ratio of around 51% is estimated.
Morgan Stanley & Co. LLC, a unit of Morgan Stanley MS, acted as financial advisor for First Horizon, while Keefe, Bruyette & Woods and Goldman Sachs GS acted as financial advisors for IBERIABANK.
In the current scenario, banks are moving toward consolidation to dodge the heightened costs of regulatory compliance and increased investments in technology, in a bid to be competitive. Furthermore, the current interest-rate scenario has also taken a toll on banks’ net interest margin, thereby adversely impacting overall profitability.
Therefore, such moves have caused investors to become optimistic about banks’ future growth prospects. Notably, shares of First Horizon and IBERIABANK rallied nearly 6.9% and 6.3%, respectively, over the last three months as compared with 9.4% growth recorded by the industry.
Currently, both First Horizon and IBERIABANK carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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