Umpqua Said in Talks to Buy Sterling for About $1.8 Billion

Umpqua Holdings Corp. (UMPQ), Oregon’s biggest bank, is in advanced talks to buy Sterling Financial Corp., the lender backed by Warburg Pincus LLC and Thomas H. Lee Partners LP, said people with knowledge of the discussions.

The deal may be valued at about $1.8 billion, said one of the people, who asked not to be named because the process is private. The talks may still collapse and there’s no guarantee a transaction will occur.

Buying Sterling would almost double the size of Portland-based Umpqua to more than $20 billion in assets and almost 400 branches, according to data compiled by Bloomberg. The move makes strategic and financial sense because it would help Umpqua expand in California, said Joseph Morford, an analyst with RBC Capital Markets in San Francisco. The bank could save money by closing some Sterling branches, he said.

“Given some of the overlap, we suspect it should be very accretive to earnings,” said Morford, who covers Umpqua and predicts the stock will perform in line with its sector.

Warburg Pincus and Thomas H. Lee each held more than 20 percent of Sterling’s common stock as of June, data compiled by Bloomberg show. Spokesmen for Sterling, Warburg and Thomas H. Lee declined to comment. A representative at Umpqua didn’t reply to a request for comment.

Sterling had a market value of about $1.7 billion as of Sept. 6. The Spokane, Washington-based lender rose 3.5 percent to $27.72 as of 4 p.m. in New York. Umpqua advanced 5 percent to $17.11.

Bank Expansion

Umpqua Chief Executive Officer Raymond P. Davis has sought to bulk up over the past two years through mergers and acquisitions. The lender, which has about $11.4 billion in assets, completed the purchase of Financial Pacific Holding Corp. in July, and last year bought Circle Bancorp, a six-branch lender in Novato, California.

A deal for Sterling would be the second-largest U.S. bank takeover announced this year, behind PacWest Bancorp’s $2.2 billion offer in July for CapitalSource Inc., according to data compiled by Bloomberg. There have been more than $8 billion in announced U.S. bank deals announced this year, the data show.

Sterling took $303 million from the U.S. Treasury Department’s Troubled Asset Relief Program, repaid a year ago through a public stock offering. The bank, run by CEO Greg Seibly, had $9.9 billion in assets as of midyear, with deposits of $6.6 billion from about 170 branches in Washington, Oregon, Idaho and California.

To contact the reporters on this story: Matthew Monks in New York at mmonks1@bloomberg.net; Jeffrey McCracken in New York at jmccracken3@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net

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