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CenterState's readiness for due diligence beat a higher offer in Charter deal

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CenterState's readiness for due diligence beat a higher offer in Charter deal

CenterState Bank Corp. was among the top three picks for a potential merger with West Point, Ga.-based Charter Financial Corp. The Winter Haven, Fla.-based bank beat the others because it was ready to start due diligence after indicating an initial price.

In December 2017, representatives of Sandler O'Neill reviewed a list of 33 potential merger partners for Charter. Of these, Sandler O'Neill identified eight institutions it deemed to have "the highest capacity and potential interest" for a deal. Among the eight, the Charter board picked CenterState and two others for further talks, citing their strategic fit, desire to expand into the Atlanta market and capacity to provide the best merger consideration.

Of the three potential merger partners, only two indicated a desire to pursue a deal with Charter. On Feb. 22, one party indicated a possible price of $24.00 per share, mainly in the form of stock consideration, and CenterState offered a possible price between $22.00 and $23.00 per share, which would consist of 90% stock and 10% cash. While CenterState's offer was lower, the company was prepared to start a preliminary due diligence review of Charter. The other party, due to pending acquisitions, indicated that it could only start merger talks late in the second quarter or early in the third quarter.

On March 19, CenterState submitted a nonbinding indication of interest to Charter, pricing each Charter share at 0.82 CenterState share or $23.00 in cash. Charter asked for a revision in the offer, seeking per-share consideration of 0.7394 shares of CenterState's stock and $3.00 in cash, which equated to about $23.74 per Charter share. Charter also requested a reverse break-up fee of $5.5 million should the proposed deal fail to secure regulatory approval and a price-based termination right should the average price of CenterState's common stock for a 20-day trading period fall below $23.59.

CenterState on March 26 submitted an updated indication of interest that did not increase the original per-share purchase consideration but revised the conversion of each Charter share into 0.738 CenterState share and $2.30 in cash. The offer included a price-based termination right and a $2.0 million reverse termination fee.

The two parties entered into a nonbinding indication of interest March 28. Due diligence and negotiations continued until April 24, when the merger was unanimously approved by the boards of both companies. The deal agreement, which included a $14.5 million termination fee payable by Charter under certain circumstances, was executed on the same date.