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United was only institution to sustain interest in deal talks with Cardinal

While a number of institutions that could serve as potential merger partners of McLean, Va.-based Cardinal Financial Corp. were contacted, it was only Charleston, W.Va.-based United Bankshares Inc. that sustained interest in pursing discussions on creating a tentative transaction.

A total of 18 potential merger partners were initially contacted, including United. Three were sent nondisclosure agreements, but only United signed a nondisclosure agreement. This was around mid-May.

More talks commenced in the coming days, with United proposing a consideration of 0.71 shares of United common stock for each Cardinal common share. The value of United's proposal, based on the closing price of its common stock on May 23 of $21.76, was $27.32 for each Cardinal common share. United also indicated that the proposal was preliminary, and subject to further due diligence, approval from the United board, and a preliminary discussion with the applicable banking regulators.

However, talks were not exclusive to Cardinal and United, as during late May to early June, Cardinal continued to contact institutions that might be interested in a deal. At the end of the marketing process, there was one interested party other than United that could have made an offer that was in the range of what the Cardinal board was willing to accept. Ultimately, the party declined to make an offer as it was involved in another merger transaction.

In mid-June, Cardinal decided to postpone its marketing process for 30 days, as responses from other financial institutions it contacted for a potential deal in the past indicated that one of the reasons these companies declined to further investigate a transaction with Cardinal was due to the low likelihood that they could meet Cardinal's pricing expectations, timing, the largeness of the transaction, and the uncertainty that a deal would receive regulatory approval. The pause in Cardinal's marketing process also allowed United to to move forward and pursue preliminary discussions with regulators concerning a potential merger.

United indicated that it was still interested in pursuing talks on a potential deal around early June, under the terms of its earlier proposal, subject to further due diligence on Cardinal.

Talks continued, with Cardinal in particular considering factors such as the assumption that United would raise capital in connection with the completion of the potential merger with Cardinal. Sandler O'Neill & Partners, Cardinal's financial adviser, estimated that United would issue approximately $200 million of non-cumulative perpetual preferred stock with a dividend of 6.50% at or around the time of the closing of the merger. Sandler also told Cardinal that based on the overlap of retail banking offices and the cost savings associated with a deal with United, United would most likely allow it to pay a higher premium than any out of market buyer. After deliberation, Cardinal's decision-makers saw it prudent to allow continued talks with United. This was on July 20.

By July 22, an initial draft of the merger agreement was being negotiated on. Among the pertinent issues in the draft were provisions relating to Cardinal's ability to pay dividends while the merger was pending, the regulatory approval closing condition in light of United's intent to raise capital in connection with the potential merger and a possible termination fee.

Due diligence efforts between the two institutions and further talks continued in the coming weeks, culminating with Cardinal and United executing the merger agreement on Aug. 17 and announcing the deal before market opening the next day.