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Old National (ONB) Signs Merger Deal With First Midwest (FMBI)

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Old National Bancorp ONB and First Midwest Bancorp, Inc. FMBI have entered into an all-stock merger of equals deal, worth $6.5 billion. The transaction is expected to close in late 2021 or early 2022, subject to approval of regulatory bodies and shareholders.

The combined company is likely to create the sixth largest bank, headquartered in the Midwest, with $45 billion worth of assets. Also, the bank will boast presence in six of the largest Midwestern MSAs, strong commercial banking capabilities, robust retail footprint and a significant wealth platform.

Since the announcement, shares of Old National and First Midwest have lost 1.2% and 2%, respectively.

Terms of the Deal

Per the agreed terms, First Midwest stockholders will receive 1.1336 shares of Old National common stock for each share of First Midwest common stock they own. Thus, post completion, former First Midwest stockholders will own about 44% of the combined company.

The firm will operate under the Old National Bancorp and Old National Bank names, with dual headquarters in Evansville, IN and Chicago, IL. Michael Scudder, chairman and CEO of First Midwest Bancorp, will serve as the executive chairman and Jim Ryan, chairman and CEO of Old National Bancorp, will maintain his role as CEO.

The board of directors of the combined company will have 16 directors — eight each from Old National and First Midwest. Becky Skillman, lead independent director for Old National, will retain this position in the company.

Financial Benefits

The deal is expected to be accretive to 2022 earnings per share (on a GAAP basis) of Old National by 22% and of First Midwest by 35%, assuming fully phased in cost savings and excluding merger charges.

Also, the combined company is expected to generate a return on average tangible common equity of 15% in 2022.

Our Take

In the current scenario, banks are moving toward consolidation to dodge the heightened costs of regulatory compliance and increased investments in technology in a bid to be competitive. Furthermore, the current interest rate scenario and other economic challenges following the pandemic have taken a toll on banks’ profitability.

The merger between Old National and First Midwest is expected to lead to increased growth prospects and creation of shareholder value.

Shares of Old National and First Midwest have rallied 13.9% and 38.9%, respectively, over the past six months, compared with 28.6% growth of the industry.

Six Months Price Performance

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Currently, both the stocks are carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Several other financial firms have been undertaking efforts to expand operations as well. M&T Bank Corporation MTB and People’s United Financial Inc. PBCT announced a merger deal earlier in 2021. The all-stock deal worth $7.6 billion is expected to close in the fourth quarter of 2021. It recently received shareholders’ approval.

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