Citizens Financial Group to buy Investors Bancorp in a $3.5B stock-and-cash deal

Providence, R.I.-based Citizens Financial Group Inc., the parent company of Citizens Bank NA, agreed to buy Short Hills, N.J.-based Investors Bancorp Inc., the parent company of Investors Bank, in a deal valued at about $3.5 billion, based on July 27 closing prices.

Under the terms of the agreement and plan of merger, Investors shareholders will receive 0.297 of a share of Citizens Financial common stock and $1.46 in cash for each share of Investors they own. Following completion of the transaction, former Investors shareholders will collectively own roughly 14% of the combined company.

The stock-and-cash transaction is expected to close in the first or second quarter of 2022.

At announcement, S&P Global Market Intelligence calculates the deal value to be 130.71% of common equity, 135.52% of tangible common equity, 13.58% of assets, 18.46% of deposits and 13.54x earnings. The tangible book premium to deposits ratio is 4.39%.

S&P Global Market Intelligence valuations for bank and thrift targets in the Mid Atlantic region between July 28, 2020, and July 28, 2021, averaged 127.03% of book and 142.46% of tangible book and had a median of 19.90x last-12-months earnings, on an aggregate basis, and averaged 121.50% of book and 140.01% of tangible book and had a median of 21.73x LTM earnings, on a per-share basis.

The merger is expected to add about $27 billion in total assets and $20 billion in deposits to Citizens Financial. The acquisition is also expected to boost Citizens Financial's banking franchise, adding a middle-market or small business and consumer customer base while building its physical presence in the northeast with the addition of 154 branches in the greater New York City and Philadelphia metropolitan areas and across New Jersey.

Based on S&P Global Market Intelligence data, Citizens Financial will expand in New Jersey by 101 branches to be ranked seventh with a 4.37% share of approximately $403.73 billion in total market deposits and will expand in New York by 46 branches to be ranked No. 36 with a 0.49% share of approximately $3.17 trillion in total market deposits.

The acquisition is expected to be immediately accretive to EPS and, given substantial synergies, expected to add approximately 6.4% to 2023 fully diluted EPS. It is also anticipated to deliver an internal rate of return of more than 20% and an estimated return on invested capital of approximately 13%.

Under the deal, approximately $130 million of fully phased in annual cost savings were identified, after provision for adding investments in brand marketing and technology capabilities. This is approximately 30% of Investors' estimated 2021 cost base, according to a news release announcing the merger. Total pretax integration costs were estimated to be approximately $400 million.

Citizens Financial expects the deal to complement its acquisition of HSBC Bank USA NA's East Coast branches and national online deposits.

Key members of Investors' management team are expected to join Citizens Financial. Investors Chairman and CEO Kevin Cummings and board director Michele Siekerka are expected to join Citizens Financial's board of directors upon the deal's close.

Morgan Stanley & Co. LLC acted as financial adviser, and Sullivan & Cromwell LLP as legal adviser, to Citizens Financial in the transaction. Keefe Bruyette & Woods served as lead financial adviser, with Piper Sandler & Co. and Lazard also serving as financial advisers, to Investors. Luse Gorman PC served as legal adviser to Investors.