As the COVID-19 pandemic continues to weigh on pending bank M&A activity, participants in pending mergers of equals provided updates on the status of their deals during first-quarter earnings calls.
There are three pending deals classified as MOEs where the target is a publicly traded U.S. bank: a tie-up between Memphis, Tenn.-based First Horizon National Corp. and Lafayette, La.-based IBERIABANK Corp.; a pending deal between McKinney, Texas-based Independent Bank Group Inc. and Dallas-based Texas Capital Bancshares Inc.; and the combination of Winter Haven, Fla.-based CenterState Bank Corp. with Columbia, S.C.-based South State Corp.
The First Horizon-IBERIABANK and CenterState-South State deals are on track to close on time. Independent Bank Group offered little detail on its Texas Capital MOE, leaving analysts questioning the deal's status. All three deals have lost over $1 billion in value since announcement thanks to market disruption from the pandemic. The drop was most pronounced for the Independent Bank Group-Texas Capital MOE, which fell 50.6% in value from its announcement through market close May 4.
Independent Bank Group announced its MOE with Texas Capital on Dec. 9, 2019. The deal is expected to close in mid-2020, but management refrained from offering additional details during the bank's first-quarter earnings call when analysts asked about the expected closing date, a future shareholder vote and merger-related risks after the shift in macroeconomic conditions.
"Unfortunately, I don't have an update this morning on the previously announced merger with Texas Capital," CEO David Brooks said during the call. "We are, as I mentioned earlier, continuing to assess the impact of COVID on our balance sheet and our income statement at this time and just can't comment on Texas Capital."
Management's decision to refrain from talking about the pending deal led to more questions than answers about the pending MOE, Michael Rose, managing director at Raymond James, wrote in note about the company's first-quarter earnings results.
"Dislocation in both [banks'] stock prices has, in our view, weighed on investor enthusiasm for the consummation of the transaction," Rose wrote.
Many analysts asked about the timing of the future shareholder vote to approve the pending deal. Independent Bank Group has filed its initial S-4 draft but has yet to file the final Form S-4, which includes the date for the shareholder meeting for deal approval.
Management's "non-committal" attitude about when it will file the final Form S-4 is notable, Stephens analyst Matt Olney wrote in a note. Among other deals announced between November 2019 and February 2020 in a Stephens analysis, the average time between announcement and the final S-4 filing was 77 days.
As of May 5, more than 140 days have passed since Independent Bank Group and Texas Capital announced their merger.
"While the deal is not officially delayed, we believe the current timeline suggests the process has slowed meaningfully," Olney wrote.
The two other pending MOEs are on track despite the ongoing COVID-19 pandemic, which has shifted the banks' focus to internal operations.
The pending First Horizon-IBERIABANK MOE is expected to close by the end of the second quarter, First Horizon CEO D. Bryan Jordan said on the company's first-quarter earnings call.
"While the economy has changed due to the coronavirus pandemic, I believe, together, we are a stronger and better institution, positioned to drive attractive shareholder returns and strong earnings accretion," he said. Shareholders for both companies approved the pending merger April 24.
The value of the First Horizon-IBERIABANK deal value dropped 46.8% from announcement through market close May 4.
The pending CenterState-South State deal — the industry's only MOE announced so far in 2020 — is still on target to close during the third quarter, management said on the companies' joint first-quarter earnings call.
Working together through the crisis has highlighted the companies' abilities to work well together, according to management. "This crisis we're experiencing today makes the opportunity we have together even more compelling and confirms that this is the right partnership for our banks and for the opportunities ahead," South State CEO Robert Hill Jr. said on the call.
Shareholder votes are scheduled for May 21, and there is a small chance the pending merger could be completed ahead of schedule, CenterState CEO John Corbett said.
The value of the CenterState-South State deal value dropped 35.7% from announcement through market close May 4.
