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Island-Independent deal talks stalled a couple of times before pushing through

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Island-Independent deal talks stalled a couple of times before pushing through

Talks over a potential merger between Edgartown, Mass.-based Island Bancorp Inc. and Rockland, Mass.-based Independent Bank Corp. stalled a couple of times due to a superior offer by a competitor and concerns on the future of Martha's Vineyard, but ultimately bore fruit, according to the background of the two institutions' merger included in a Form S-4 filed Dec. 9.

One of the major factors that prompted Island Bancorp to find a merger partner was growth issues tied to its participation in the U.S. Treasury's Small Business Lending Fund program.

In September 2015, the Island board evaluated the company's ability to grow or raise capital to support growth and replace the remaining $2 million of SBLF preferred stock in light of the stock's dividend rate, which was set to balloon from 1% to 9% in early 2016.

After some discussion, it was decided that the best course of action would be to explore a potential sale or merger. Including Independent, 36 companies comprised the initial list of institutions that appeared to have the size, resources and potential motivation to consider an affiliation with Island.

Three institutions responded with written nonbinding expressions of interest. Independent submitted a $425-per-share stock-and-cash bid, with a mix of 75% stock and 25% cash at a fixed exchange ratio; meanwhile, a mutual institution submitted an all-cash bid of $437 per share and a stock institution submitted a bid of $424 per share, 80% stock and 20% cash. Another mutual institution sent a nonbinding expression of interest a bit later, which proposed a cash consideration of $516.50 per share.

After executing confidentiality agreements and gaining access to confidential information, all four revised their bids in late February.

The revised expression of interest from Independent involved mixed consideration based on a fixed exchange ratio, and it represented approximately $460.63 per share. The revised bid from the stock institution also involved mixed consideration and represented roughly $441 per share. The revised bid from the first mutual institution was all cash at $467 per share, while the second mutual institution submitted a cash bid for $545 per share conditioned upon various factors, including a grant of exclusivity.

While the first three bids were more likely to be completed, the second mutual institution's bid was the largest of the lot. Despite a questionable probability of consummation, Island continued to explore the deal, seeking to shorten or eliminate the exclusivity period and assess how likely a potential deal would be to get regulatory approval.

However, in June it was determined that getting the regulatory approvals for a transaction with the second mutual institution was doubtful and, at a minimum, would involve a longer-than-normal time frame. Thus, discussions were terminated.

After making inquiries to the three previous bidders, including Independent, as well as an additional potential bidder — which indicated later that it was not interested in pursuing a deal — Island determined that it would continue discussions with Independent.

In mid-June, Independent submitted a revised nonbinding expression of interest offering mixed consideration of 80% stock and 20% cash which at the time represented aggregate consideration of approximately $23.7 million, or $490 per share. The offer involved a cash price of $490 per share for 20% of the outstanding Island stock and a fixed exchange ratio of 10.1660 of Independent common shares per share for the remainder of Island's stock.

On Aug. 15, Independent revised its proposed fixed exchange ratio from 10.1660 to 9.9000 Independent common shares per Island common share and increased the cash value of its offer from $490 to $500 per Island common share, representing a per-share price for Island of approximately $507.88. However, due to concerns over future successful growth and the management of operations in Martha's Vineyard, Independent terminated its discussions with Island on Aug. 26.

However, after several days and communications between representatives of Island and Independent, discussions between the two resumed. Island agreed to extend exclusivity with Independent through Oct. 20 to allow further discussions and to grant Independent additional time to evaluate options for managing operations in Martha's Vineyard. Independent ultimately resolved its concerns. The parties continued to negotiate terms, resulting in a fixed exchange ratio of 9.525 Independent common shares per share of Island stock and a cash price of $500 per Island common share based upon a stock/cash consideration mix of 80%/20%. The consideration represented approximately $504.55 per share on the date the Island board of directors considered the proposal.

The boards of the two companies ultimately approved the merger, with the parties executing the merger agreement and making a deal announcement Oct. 20.