Are MB Financial Shareholders Getting Enough in the Merger?

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MB Financial Inc. (NASDAQ: MBFI) saw its shares make a handy gain to start the week after it was announced that it would be merging with Fifth Third Bancorp (NASDAQ: FITB). Granted, the transaction is subject to the satisfaction of all customary closing conditions, including regulatory approvals and the approval of MB Financial shareholders.

The transaction is valued at roughly $4.7 billion. Approximately 90% of the consideration will be in stock with the rest in cash.

Based on the closing price of Fifth Third’s common shares on May 18, 2018, common shareholders of MB Financial will receive $54.20 of total consideration, consisting of 1.45 shares of Fifth Third common stock and $5.54 in cash for each share of MB Financial common stock.

The consideration implies a premium of 24% to MB Financial’s closing share price on Friday, May 18. Compared to the 50-day and 200-day moving averages of $42.58 and $42.93, respectively, the transaction offers premiums of 27% and 26%.

The merger will result in a total Chicago deposit market share of 6.5%, ranking the combined company fourth in total deposits and second in estimated retail deposits among the nearly 200 banks in the marketplace. Additionally, the combined company will have a 20% share of middle market relationships in Chicago, ranking it second.

In conjunction with the closing of the transaction, two members of MB Financial’s board of directors are expected to join the Fifth Third Bancorp board.

Greg D. Carmichael, board chair, president and chief executive officer of Fifth Third Bancorp, commented:

There were no other potential partners of the same caliber as MB Financial in the Chicago market, and we are very pleased to reach an agreement to merge our companies. We view MB Financial as a unique partner in our efforts to build scale in this strategically important market. Customers of both banks will benefit from greater convenience and the complementary capabilities that our banks, together, can offer.

Shares of MB Financial closed Friday at $43.65, with a consensus analyst price target of $46.11 and a 52-week trading range of $38.28 to $47.64. Following the announcement, the stock was up about 15% at $50.40 in early trading indications Monday.

Fifth Third closed Friday at $33.56 a share, with a consensus price target of $35.22 and a 52-week range of $23.20 to $34.67. Following the announcement, the stock was down about 5% at $31.99.