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Cadence's higher bid, lower execution risk beat rival in State Bank deal

Atlanta-based State Bank Financial Corp. reached out to five parties for a potential merger. Of these, only Houston-based Cadence Bancorp. and another party made final offers for State Bank.

One party said it was not in a position to pursue a business combination with State Bank. Another said it was not interested in pursuing a deal.

The third one had entered into a confidentiality agreement with State Bank and on Nov. 7, 2017, even submitted a nonbinding letter of intent. The State Bank board was due to consider the proposal but the party rescinded the letter of intent after its stock price declined. When asked in February 2018 if it was still interested in a merger with State Bank, the party said it would no longer pursue a deal.

Meanwhile, Cadence and its rival continued to express their interest in acquiring State Bank. In mid-March, the rival said it was considering an all-stock transaction with a fixed exchange ratio implying a price ranging from $32.88 to $33.67 per State Bank share. Later that month, Cadence delivered a nonbinding letter of intent proposing an all-stock deal valued at $31.01 per State Bank share.

State Bank continued negotiations with both Cadence and its rival. On April 24, State Bank's financial advisers asked Cadence and its rival to submit their final bids on May 8.

Cadence proposed an all-stock deal with a fixed exchange ratio of 1.16x Cadence shares, implying a price of $34.67 per State Bank share. Cadence also offered State Bank three board positions on its board and that of its subsidiary, Cadence Bank NA, and said it would relocate Cadence Bank's headquarters from Birmingham, Ala., to Atlanta. Cadence had also completed its due diligence and was ready to immediately execute the merger agreement.

Meanwhile, the rival proposed an all-stock transaction with a fixed exchange ratio implying a price of $33.62 per State Bank share. The rival also noted several remaining open items in its definitive agreement, which State Bank deemed resolvable, and said it would need to complete due diligence and obtain final approval from its board, which would take at least two weeks should State Bank choose to proceed with the rival.

On May 10, State Bank's board concluded that the proposed deal with Cadence was the higher offer and had "less significant" execution risks. The next day, State Bank and Cadence executed the merger agreement. The deal included a $37.5 million termination fee, payable by State Bank under certain circumstances, and a $2 million reimbursement fee, payable by Cadence under certain circumstances.