Why Sterling Financial Shares Surged
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Sterling Financial climbed 10% today after fellow regional bank Umpqua Holdings agreed to acquire it for $2 billion.
So what: The cash-and-stock deal -- Sterling shareholders will receive 1.671 shares of Umpqua and $2.18 in cash for each share -- values Sterling at about $30.52 per share and represents a premium of 15% to its closing price on Tuesday. The transaction will create the West Coast's largest community bank with approximately $22 billion in assets, but judging from Umpqua's 2% slide today, Mr. Market isn't thrilled with the price it's paying to do it.
Now what: Umpqua expects the acquisition to dilute its tangible book per share by 4.6% at closing, but it also believes its 2015 operating EPS will jump 12% as a result of the move. "Together, Umpqua and Sterling will create something unique in the financial services industry, an organization that offers the products and expertise of a large bank but delivers them with the personal service and commitment of a community bank," said Umpqua CEO Ray Davis. "With our size, shared cultures and financial strength, our combined organization will be uniquely positioned to deliver value for our associates, customers, communities and shareholders." So while Sterling's upside might be a bit limited at this point, Umpqua's newly bolstered scale might be a strong source of outsized gains going forward.
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