North Carolina’s second-largest lender is making a play to reshape the banking industry in Maryland and the Mid-Atlantic region.
The announcement by BB&T Corp. Wednesday that it has agreed to buy Lititz, Pennsylvania-based Susquehanna Bancshares Inc. for about $2.5 billion shuffles the lineup of major banking players in the area.
In one fell swoop, BB&T would gain significant market share.
Here’s the math:
Susquehanna has 245 locations in Pennsylvania, Maryland, New Jersey, and West Virginia. The acquisition would give BB&T a total of 312 branches and 7.5 percent deposit market share in Susquehanna’s footprint and make it the fifth-largest bank in the region, according to SNL Financial.
Only Wells Fargo, PNC, Toronto-Dominion and M&T Bank would have a larger market share.
The deal, subject to Susquehanna shareholder and regulatory approval, is expected to close in the second half of 2015.
Susquehanna has assets of approximately $18.6 billion, compared with $187 billion for BB&T.
BB&T said it will create three new banking regions that oversee markets in New Jersey and Pennsylvania, while the Baltimore region will be brought into the areas Susquehanna operates.
Susquehanna executives will run those regions and the bank’s chairman and CEO, William Reuter, will take a seat on BB&T’s board.
Susquehanna “expands our franchise into a contiguous, attractive region that presents an exciting opportunity for us,” BB&T Chief Executive Officer Kelly King, 66, said in a statement. “The diversity of our markets is a key element of our long-term success.”
News of the deal sent Susquehanna’s stock price soaring. Shares of Susquehanna jumped 33 percent to $13.15. BB&T’s shares fell 2 percent to $37.55.
Based on Susquehanna’s closing price Tuesday, BB&T is paying a 39 percent premium.
Susquehanna shareholders would receive 0.253 share of BB&T common stock and $4.05 in cash for each share, BB&T said today in a statement. Based on BB&T’s closing price of $38.33 yesterday, the offer is worth about $13.75 a share, 39 percent more than Susquehanna’s $9.90 closing price. Calculated using BB&T’s average closing price over the 45 days ended Nov. 10, the deal is worth $13.50 a share.
“We expect the market to initially view this transaction skeptically as BB&T is paying a full price” to extend into “markets it doesn’t necessarily have to be in,” Jason Goldberg, a Barclays Plc analyst, said in a note to clients.
BB&T has been expanding recently, and the deal announced Wednesday is one of the largest in the banking sector since the financial crisis.
Bank deals, which dropped off amid stricter regulations brought on by the financial crisis, are picking up again in the U.S. In July, commercial lender CIT Group Inc. agreed to buy OneWest Bank from parent IMB Holdco LLC for $3.4 billion.
Regional lenders, including U.S. Bancorp and Huntington Bancshares Inc,. are shopping for pieces of bigger rivals as companies such as Citigroup Inc. and Bank of America Corp. seek to exit regions and businesses.
“The overall climate is changing, you will see some other acquisitions,” King said today in a phone interview. “Potential sellers have decided it’s a good time to sell because they’re realizing the substantial costs that go into being regulatory complaint.”
Feeding on castoffs has allowed smaller lenders to sidestep pitfalls of acquiring whole firms, including regulatory holdups and crisis-era liabilities. A regulatory review has delayed M&T Bank Corp.’s acquisition with Hudson City Bancorp Inc., the biggest pending U.S. bank deal, for two years.
BB&T has been scooping up branches from competitors and seeking acquisitions as King pushes into new regions. The Winston-Salem, North Carolina-based firm said in September it planned to buy Bank of Kentucky Financial Corp. for $363 million, a week after agreeing to acquire 41 Texas branches from Citigroup Inc.
The Susquehanna sale price is less than the Pennsylvania holding company’s book value of $2.75 billion as of Sept. 30, according to data compiled by Bloomberg. Book value is a measure of the bank’s worth in a liquidation after liabilities are subtracted from assets.
As part of its agreement with Susquehanna, BB&T said it expects to incur pre-tax merger and integration costs of approximately $250 million.