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Bear State picked Arvest over rival's all-stock offer

In early March, DD&F Consulting Group reached out to Little Rock, Ark.-based Bear State Financial Inc. to suggest that it would make an attractive target for Arvest Bank Group Inc. of Bentonville, Ark.

Having secured Bear State's permission to begin merger talks, DD&F got the ball rolling. Arvest could not engage in serious discussions at the time, but it was sufficiently interested to conduct preliminary due diligence using publicly available information. In mid-April, it requested immaterial, nonpublic information.

In June, at a meeting of Bear State and Arvest executives, Arvest suggested the possibility of an all-cash acquisition. This was later clarified to imply a deal value of $10.53 per share, about 10% higher than Bear State's common stock at the time.

At a June 26 Bear State board meeting, the directors discussed the unlikelihood of further material cost savings and the need to grow to between $3 billion and $5 billion in assets to continue generating attractive yields. The company had previously attempted to find merger targets in Arkansas, Missouri and surrounding states, and could go looking in Oklahoma and Louisiana, but Bear State Chairman Richard Massey pointed out the latter states' oil price-related risks.

The board decided to check for other possible acquirers and to formally engage DD&F to assist in a potential transaction.

In July, DD&F spoke with six financial institutions identified as potential merger partners for Bear State. Of the six, one submitted a proposal, offering a stock transaction with an implied price of $9.45 to $10.95 per share. It also demanded immediate exclusive negotiating rights and a merger closing date no earlier than the first quarter of 2018.

When the Bear State board compared the proposals, it noted that the all-stock bid would subject the company to market risk and give shareholders only 18% of the resulting entity. The board further expressed concern about the liquidity of the shares to be received. That discussion and subsequent ones confirmed to the board that Arvest offered the better deal.

In August, following a detailed due diligence review and in consideration of merger-related costs, Arvest lowered its proposal to $10.28 per share. Around the same time, its previous rival's terms would have valued Bear State at $9.75 per share. Bear State's board voted to execute the merger agreement with Arvest.

The terms include a $14.0 million termination fee payable by Bear State under certain circumstances, should the deal fall through.

Bear State Financial's shareholders will vote on the merger Nov. 15.