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First Horizon (FHN) Buys Capital Bank, Boosts Tennessee Base

Zacks Equity Research

Tennessee-based First Horizon National Corporation FHN entered into a stock-cash acquisition deal with Charlotte, N.C.-based Capital Bank Financial Corp. CBF, under which the former will acquire the latter for a total value of $2.2 billion. The combined entity will form the fourth largest regional bank in the Southeast.

Board members of both companies have approved the merger. However, the deal awaits certain customary approvals by regulators and shareholders of both companies. Moreover, the transaction is anticipated to close in fourth-quarter 2017.

“This is an exciting time for First Horizon,” said Bryan Jordan, chairman and CEO of First Horizon. “Together with the accomplished team at Capital Bank we will be able to leverage the strengths of both banks and capitalize on growth opportunities in attractive, high-growth Southeast markets and enhance our strong presence in our Tennessee markets. This partnership will help us more quickly achieve our critical bonefish financial targets. We look forward to working with the talented people of Capital Bank to combine the best of both of our organizations,” he further noted.

Terms of the Deal

Per terms of the deal, each common shareholder of Capital Bank will get cash or stock equivalent to 1.750 of First Horizon shares and $7.90 in cash for every Capital Bank share held, subject to certain conditions. The deal has been agreed upon 80% stock and 20% cash. Specifically, Capital Bank shareholders in total will own about 29% of First Horizon’s common shares and $411 million in cash.

First Horizon, with $30 billion in assets, and Capital Bank, with $10 billion in assets, will create the combined entity with $40 billion in assets, $32 billion in deposits and $27 billion in loans. The high potential market in North Carolina, along with the strong relationships that Capital Bank has built in the area, seems to have prompted First Horizon to opt for the acquisition. The deal certainly fortifies First Horizon’s footprint in the Southeast, with about 300 branches in Tennessee, North Carolina, South Carolina, Florida, Mississippi, Georgia, Texas and Virginia.

Per the terms, post completion of the deal, First Horizon will maintain its First Tennessee bank brand in Tennessee, while the Capital Bank name will be used for branches outside Tennessee.

Barclays Capital Inc., a unit of Barclays PLC BCS and Morgan Stanley & Co. LLC, a unit of Morgan Stanley MS acted as financial advisors for First Horizon.

Bottom Line

We believe that the latest acquisition is a befitting one that should support the future prospects of First Horizon, which amid the financial crisis, was adversely affected as a result of its exposure to national mortgage and construction lending.  The company decided to exit these business lines and focus on growing the core Tennessee banking franchise.

The company’s repositioning and restructuring efforts, which are still underway, help it reallocate the capital into the core markets. Also, its focus on cost control and efforts to boost long-term profitability are expected to augur well.

Such moves have caused investors to become optimistic about First Horizon's growth prospects. Notably, the company's share price rose nearly 19% over the last six months as compared with 26.2% growth recorded by the Zacks categorized Southeast Banks industry.

Currently, First Horizon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Barclays PLC (BCS): Free Stock Analysis Report
First Horizon National Corporation (FHN): Free Stock Analysis Report
Capital Bank Financial Corp. (CBF): Free Stock Analysis Report
Morgan Stanley (MS): Free Stock Analysis Report
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