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Fifth Third to buy MB Financial in $4.7B deal

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Fifth Third to buy MB Financial in $4.7B deal

Cincinnati-based Fifth Third Bancorp agreed to buy Chicago-based MB Financial Inc. in a transaction valued at $4.7 billion.

Approximately 90% of the consideration will be in stock with the rest in cash. MB Financial shareholders will receive $54.20 of total consideration, consisting of 1.45 Fifth Third shares and $5.54 in cash, for each share held. The total consideration implies a premium of approximately 24% to MB Financial's May 18 closing price.

On a per-share basis, SNL calculates that the deal value is 166.3% of book, 270.7% of tangible book and 14.8x earnings. It is 22.76% of assets, 30.66% of deposits and the tangible book premium-to-deposits ratio is 19.42%.

Two MB Financial directors are expected to join Fifth Third's board once the deal closes, expanding Fifth Third's board size to 14 members. Also, MB Financial President and CEO Mitch Feiger will serve as chairman and CEO of Fifth Third's Chicago region. Other key members of MB Financial's leadership team are also expected to join Fifth Third.

As of March 31, Fifth Third had $142 billion in assets and 1,153 full-service banking centers. MB Financial, the parent company of MB Financial Bank NA, has approximately $20 billion in assets, $15 billion in deposits and 91 locations.

Fifth Third Chairman, President and CEO Greg Carmichael said that the combined company will have a total Chicago deposit market share of 6.5%, ranking fourth in total deposits and second in estimated retail deposits among the nearly 200 banks in the marketplace. The deal is expected to reduce Fifth Third's regulatory common equity Tier 1 ratio by approximately 45 basis points, and the pro forma tangible common equity to tangible assets ratio of the combined entity is projected to be 8.2% at closing.

Carmichael added that aside from the merger's strategic importance, it is expected to drive significant financial benefits. Fifth Third expects the deal to generate an internal rate of return of approximately 18.5%. The deal is also projected to be accretive to operating EPS by 2% in 2019 and nearly 7% in 2020 once cost savings are fully realized. The merger is also expected to materially enhance Fifth Third's targets for its Project NorthStar initiatives.

SNL data shows that Fifth Third Bancorp will expand Illinois by 90 branches to be ranked fifth with a 5.21% share of about $479.48 billion in total market deposits and will expand Indiana by one branch to be ranked third with a 7.12% share of roughly $124.3 billion in total market deposits.

The transaction is subject to regulatory approvals as well as the approval of MB Financial shareholders.

Fifth Third plans to complete its 2017 buyback plan under the Comprehensive Capital Analysis and Review before the start of the proxy solicitation connected with the MB Financial shareholder vote on the deal. Fifth Third intends to repurchase up to $235 million of its common shares prior to proxy solicitation. It may also repurchase additional shares after the vote, subject to regulatory approvals.

Citi served as financial adviser to Fifth Third and Simpson Thacher & Bartlett LLP served as legal adviser. For MB Financial, Sandler O'Neill & Partners served as financial adviser while Silver Freedman Taff & Tiernan LLP and Vedder Price served as legal counsel.

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