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Comerica to Buy Texas Bank Sterling for $1.03 Billion

Comerica Inc., the Dallas-based bank that posted an annual profit throughout the financial crisis, agreed to buy Sterling Bancshares Inc. for about $1.03 billion in stock to increase its Texas market share.

Sterling investors will receive 0.2365 Comerica share for each share they own, Comerica said today in a statement. That values Houston-based Sterling at about $10 a share, the bank said. Sterling closed at $7.70 on Jan. 14.

“Sterling has a very appealing branch network, which almost doubles our presence in Houston, and provides an entry into the San Antonio market, one of the fastest-growing metropolitan areas in the country,” Ralph W. Babb Jr., chairman and chief executive officer of Comerica, said in the statement.

The sale heads off a potential fight with Sterling’s biggest shareholder, Donald A. Adam. Adam said in a Nov. 8 regulatory filing through an investment vehicle, TAC Capital LLC, that he would seek to replace five Sterling directors with himself and four of his nominees.

“Sterling’s stock price, earnings and operational performance have significantly lagged the performance of its peers for a protracted period,” Adam said in a letter to shareholders included in the filing. “Moreover, we have lost confidence that Sterling’s current board of directors and executive team will be able to unilaterally effect a turnaround.”

The purchase, which must be approved by Sterling shareholders, would expand Comerica’s Texas branch network to 152 from 95 and add about $3 billion in loans and $4 billion in deposits. Sterling has $5.2 billion of assets.

‘Most Desirable Footprint’

“This is arguably the most desirable footprint in Texas,” Babb said during a conference call. “It’s an expanding situation, not a consolidating situation.”

The combined company will have a Tier 1 capital ratio of about 10 percent, according to the statement. The transaction, which Comerica said will be completed in the middle of this year, will generate merger and integration costs of about $80 million after taxes in the first year and add to earnings after that, the company said.

Comerica dropped 8.3 percent, the most since July 2009, to $38.74 at 4 p.m. in New York Stock Exchange composite trading. Sterling rose 16 percent to $8.93 in Nasdaq Stock Market trading.

Book Value

The transaction values Sterling at about 1.6 times book value, or assets minus liabilities. That compares with a median multiple of 1.3 times book value in 37 U.S. bank acquisitions in the last 12 months, according to data compiled by Bloomberg. Comerica said it is paying about 2.3 times Sterling’s tangible book value, a figure that excludes goodwill.

Comerica repaid $2.25 billion from the Troubled Asset Relief Program in early 2009. Sterling has paid back $125 million in TARP funds.

“The combination with Comerica is good news for Sterling shareholders, customers and employees,” said J. Downey Bridgwater, chairman and CEO of Sterling, in a statement. The deal “offers our customers an outstanding array of products and services from Comerica.” Bridgewater will become the president of the Houston market, Comerica said in the statement.

In a separate statement, Comerica said fourth-quarter net income was $96 million, or 53 cents per share, compared with a $29 million loss, or 42 cents, in 2009. Thirty analysts surveyed by Bloomberg predicted a per-share profit of 31 cents.

Sterling’s Profit

The lender set aside $57 million in loss provisions compared with $256 million in the same period a year earlier, Comerica said. Net credit-related charge-offs decreased 14.3 percent to $113 million in the fourth quarter from the previous three months and fell 50 percent from a year earlier, according to the statement.

Sterling’s fourth-quarter net income climbed to $1.9 million, or 2 cents per share, compared with $1.7 million in 2009, or 2 cents, in the year earlier, the bank said today in a statement. Non-performing loans decreased $30.5 million, or 19 percent, compared with the previous three months, according to the bank.

Sandler O’Neill & Partners LP is advising Comerica on the acquisition, and Wachtell Lipton Rosen & Katz is legal counsel. Sterling is using Morgan Stanley and law firms Locke Lord Bissell & Liddell LLP, DLA Piper LLP and Shearman & Sterling LLP.

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