FirstMerit Corp., the Akron, Ohio-based lender, agreed to acquire Citizens Republic Bancorp Inc. for about $952 million in stock to expand into Michigan and Wisconsin. FirstMerit shares fell the most in almost four years.
Citizens’ investors will receive 1.37 shares of FirstMerit common stock in exchange for each of their shares, the banks said today in a statement. The deal values Citizens 18 percent higher than yesterday’s closing price, or about $23.51 per share. FirstMerit shares fell 11 percent to $15.23 at 4 p.m. in New York trading, the biggest drop since Dec. 1, 2008. Citizens rose 0.6 percent to $19.99.
FirstMerit expects to repay Flint, Michigan-based Citizens’s $345 million of Troubled Asset Relief Program preferred stock, including $45 million of deferred dividends. The move helps FirstMerit expand into Wisconsin and Michigan and strengthens its presence in northeast Ohio, according to the statement. The deal is almost twice the price of FirstMerit’s second-largest acquisition, according to data compiled by Bloomberg.
“They’re entering Michigan for the first time, and there’s concern about how well it will work,” said Christopher McGratty, an analyst at KBW Inc. who rates FirstMerit shares market perform. “The other thing is it’s large. It’s a big transaction that’s out of market. With that you get higher integration risk.”
FirstMerit, run by Chief Executive Officer Paul Greig, will have $24 billion in assets, $15 billion in loans and $19 billion in deposits after the transaction, according to the statement.
The deal, which is expected to be completed in the second quarter of 2013, will be 7.5 percent accretive to FirstMerit earnings in 2014, the bank said. FirstMerit will appoint two Citizens directors to its board.
Citizens has lost more than $1 billion since 2007 on bad commercial and residential real-estate loans, forcing the lender to operate under a supervisory agreement with the Federal Reserve Bank of Chicago. The U.S. Treasury Department appointed two directors to the board last year after the bank stopped paying dividends on its bailout funds.
RBC Capital Markets LLC was the financial adviser for FirstMerit, and JPMorgan Chase & Co. advised Citizens.