WASHINGTON. News of a surprising and impressively large regional bank merger hit the business wires hard Thursday morning. Big North Carolina-based regional bank BB&T (originally Branch Banking and Trust, trading symbol BBT) announced its plan to purchase Atlanta-based SunTrust Banks (STI).
The resulting transaction, valued at some $28 billion, would create the 6th biggest US bank. Analysts and financial journalists regard this as the biggest M&A deal in the US banking sector since the darkest days of the Great Recession.
Details on the BB&T (BBT) and SunTrust (STI) M&A agreement
Both banks expect this just-announced deal to close in or around Q4 2019. Some key points follow.
- The combined banking entity plans to adopt a new name as the deal closes.
- The two banks characterize the agreed-upon transaction as a “merger of equals, The new bank will boast approximately $442 billion in assets, $324 billion in deposits and $301 billion in outstanding loans.
- Its broad network will stretch up and down the Eastern Seaboard, and will also include branches in Texas, where BB&T currently operates.
- BB&T (BBT), currently headquartered in Winston-Salem, North Carolina, and SunTrust (STI), currently headquartered in Atlanta, will relocate the new bank’s central offices and corporate HQ to Charlotte, NC. However, the new bank will retain some operations in their original home locations.
- The two banks regard this transaction as a “merger of equals.”
- The transaction is valued at approximately $66 billion.
- As a major part of this deal, SunTrust shareholders are slated to receive 1.295 BBT shares for each SunTrust share they own.
- Valuation of the deal for SunTrust (STI) shareholders: approximately $62.85 per share. That amounts to a 7 percent premium over SunTrust’s closing price as of Wednesday’s close, according to Reuters.
Ownership and other internal details
- At the transaction’s close, BB&T shareholders will own about 57 percent of the combined entity. SunTrust shareholders will own the balance of the shares.
- After the deal closes near the end of 2019, both banks expect that the new banking entity will enjoy annual cost savings of approximately $1.6 billion by the time all the internal details are put in place. That time is estimated to occur some time in 2022.
- The new entity also calculates an internal rate of return of approximately 18 percent.
- The deal, expected to close in the fourth quarter, will likely result in annual cost savings of around $1.6 billion by 2022, the companies said. The merger will generate an internal rate of return of about 18 percent.
- BB&T CEO Kelly King plans to occupy the executive suite of the new banking entity when it moves to Charlotte, he plans to relinquish that office on September 12, 2121. At that point, current SunTrust CEO William Rogers, Jr. will take over as CEO.
Thursday trading action in BBT and STI shares
SunTrust shares rose 10 percent in pre-market trading before backing off somewhat. As of 2:30 p.m. ET, shares are trading just under $64 per share, a 5+ percentage point gain thus far on Thursday. The share price of an acquired company frequently rises above the approximate offering price. Traders may anticipate the emergence of a competing bid.
While shares of the acquiring company frequently drop in price after such an announcement, BBT shares actually rose somewhat on the news. BBT shares currently trade at $49.70, up 1.16 points on the day thus far.
Background of a big bank deal
As both banks are long-standing, well run regional institutions dating back to the 19thcentury, most analysts believe the proposed new banking entity won’t encounter significant headwinds as they run the Federal regulatory approval gauntlet in Washington.
Several sources note that the announcement of this deal may be due at least in part to the Trump administration’s vigorous push to either roll back or ease somewhat the draconian regulations forced upon the nation’s surviving banks as a result of the Great Recession. Congress and the Obama administration increased regulatory scrutiny on the banks. They also imposed stringent restrictions on bank mergers and expansion.
Another likely factor helping to make this deal a reality was the massive new GOP tax-cut legislation, passed in late 2017 and effective on January 1, 2018. The significant reduction in corporate taxes resulting from that legislation, plus its additional loosening of capital restrictions almost certainly made it easier to accomplish this substantial bank deal in a way that would not have been possible during the highly restrictive Obama administration.
While many experts insist the US economy will enter a recession some time later this year, analysts still expect that more big deals in the banking sector and elsewhere will be announced in the coming days of 2019 and 2020.
Thursday market action: Down on China trade delay rumors
Unfortunately, aside from the BBT / SunTrust transaction, the rest of the market opened down Thursday morning. And the move became more decisive Thursday afternoon when rumors hit the tape that a US-China trade deal, while increasingly likely, might not happen before President Trump’s March 1 deadline for a resolution in the current bi-lateral trade talks.
The Dow – down some 266 points – and the broader-based S&P 500 – down some 33 points – are off over a percentage point each as of 3 p.m. ET. The tech-heavy NASDAQ is even worse, off a whopping 109 points for a nearly 1.5 percent loss. That’s largely due to the US-China trade talk rumors, which, if true, could have a disproportionally negative affect on tech stocks.
Mr. Market’s spectacular January thaw went a long way toward making 2018’s battered bulls whole again. Seemingly, all badly damaged averages and stocks decided to go straight up. But it was perhaps inevitable that some of those terrific gains would be pulled back again. And indeed, that’s exactly what’s happening Thursday afternoon.
On the other hand, Friday is another day. So stay tuned.
— Headline image: L: BB&T HQ in Winston-Salem, NC; R: SunTrust HQ, Atlanta, GA.
Both images via Wikipedia entries on each bank. Respective licensing: BB&T image, CC 3.0;
SunTrust image, public domain)