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UPDATE 2-U.S. West Coast regional lenders Columbia and Umpqua to combine

·2 min read

(Recasts, new throughout with CEO interview, detail, context)

By David French

Oct 12 (Reuters) - Columbia Banking System Inc is to acquire larger rival Umpqua Holdings Corp in an all-stock deal worth $5.1 billion, the duo said on Tuesday, consolidating their banking footprints along the U.S. West Coast.

Both institutions are present in Washington state, Oregon, Idaho and California, with Umpqua also having locations in Nevada. The combined entity will have $50 billion in assets and will be the area's largest regional bank by market share of deposits, they said.

News of the deal sent both banks' shares lower: Columbia's stock slumped 12.7% in midmorning trading, while Umpqua traded 3% lower.

There has been a steady stream of tie-ups among midsized lenders in the last two years, as institutions seek increased scale to better compete against the largest U.S. banks. This includes sharing technology spending and other costs at a time when low interest rates makes earning profits from traditional banking services more challenging.

Unlike other deals though, involving a larger party absorbing a smaller one or a merger of equals, Columbia is offering 0.5958 of its stock for each Umpqua share, giving it around 38% of the combined entity, according to a statement.

"It's an unusual structure, but it's also very unusual for two companies of our size to come together," Columbia Chief Executive Clint Stein told Reuters.

Stein, who will serve as the combined entity's CEO, added that the structure allowed the pair to get around issues that would normally prevent a merger consummation, such as the perception of one bank being forced into the arms of the other.

Once the tie-up is completed, Umpqua's chief executive, Cort O'Haver, will become executive chairman and the board will consist of seven members of each legacy bank.

Once merged, the overall holding company will be based in Tacoma, Washington, and retain the Columbia name. Meanwhile, the combined banking operations will be branded Umpqua and run from Umpqua's base in Portland, Oregon. (Reporting by David French in New York and Sohini Podder and Niket Nishant in Bengaluru; Editing by Vinay Dwivedi, Shinjini Ganguli and Jonathan Oatis)