Cincinnati-based Fifth Third Bancorp announced plans Monday to acquire Chicago's MB Financial Inc. for about $4.7 billion, mostly in stock.
MB Financial Inc., the parent of MB Financial Bank, has about $20 billion in assets.
The deal will give Fifth Third a bigger foothold in the Chicago market, where MB Financial is among the middle-market banking leaders with 86 retail bank branches.
The combined company will have a Chicago deposit share of 6.5 percent, ranking it fourth in total deposits and second in estimated retail deposits among nearly 200 banks in the marketplace.
Greg Carmichael, chairman and CEO of Fifth Third Bancorp, said Monday in written remarks that the deal will create more convenience for customers of both banks.
MB Financial shareholders will receive the equivalent of $54.20, or 1.45 shares of Fifth Third common stock and $5.54 in cash for each share of MB Financial common stock. The offer is a 24 percent premium to MB's closing share price Friday.
Last month, MB Financial announced it was closing its national mortgage origination business, which has 49 offices in 16 states, citing heavy competition and low profit margins.
Fifth Third has $142 billion in assets and operates 1,153 full-service banking centers and 2,459 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina.
According to 2017 data, Fifth Third was the second largest bank operating in the Indianapolis area based on local employment, with 531 workers at 50 branches.
Fifth Third shares saw their biggest one-day decline in two years Monday morning, falling 7.7 percent, to $30.97 each.
“They’re giving away more upfront than they’re getting in the short term,” Chris Marinac, director of research for FIG Partners, said in a telephone interview. “Fifth Third’s paying a premium in a pretty big way.”
Fifth Third said in a statement Monday that the acquisition means it can boost financial targets.
Chicago has the second-highest number of middle-market firms in the country behind New York City, making it an attractive market for commercial banking, Carmichael said on a conference call. The bank has long focused on large corporate customers, he said, and buying MB Financial will give it greater access to smaller commercial clients.
“This is not a company that is spread out to weaker markets across different states,” Tayfun Tuzun, chief financial officer at Fifth Third, said on the call. “This is one single market, a very important market for us, and we’ll hit the ground running day one. And what we paid for the company is everything related to what this company brings to us.”
The acquisition will generate an internal rate of return of almost 19 percent and be accretive to operating earnings in the first year, according to Carmichael. It will probably reduce Fifth Third’s regulatory common equity Tier 1 ratio by about 45 basis points, the bank said.
“There were no other potential partners of the same caliber as MB Financial in the Chicago market,” the CEO said in the statement.
Mitch Feiger, MB Financial’s CEO, acknowledged on the conference call that the bidding process for his firm was competitive, declining to say more. He said the two companies had been in dialogue about a transaction for a “long period of time.” Feiger will be Fifth Third’s chairman and CEO for the Chicago region.
The Chicago market has become highly fragmented in recent years and has drawn interest from Canadian banks looking to expand in the U.S., said Nathan Race, an analyst at Piper Jaffray & Co.
Two members of MB Financial’s board will join Fifth Third’s board. About 90 percent of the deal will be paid for in stock and the rest in cash.