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TCF Financial-Chemical Financial Deal Gets Shareholder Vote

Zacks Equity Research

The all-stock merger deal between TCF Financial Corporation TCF and Chemical Financial Corporation CHFC has received the necessary consent of the respective shareholders. The deal was announced in January 2019 and is expected to close in the third quarter or early fourth-quarter 2019.

TCF chairman and chief executive officer Craig R. Dahl said, “This positive shareholder response demonstrates a broad recognition of the shared strategic vision and complementary strengths of the two organizations.”

Brief Background on Merger

Per the terms of the merger deal, TCF Financial will merge into Chemical Financial. The combined holding company and bank will be headquartered in Detroit, MI, and operate under the TCF name.

TCF shareholders will be eligible to receive 0.5081 shares of Chemical Financial common stock for each share of TCF common stock based on a fixed exchange ratio, equivalent to $21.58 per TCF share, based on the closing price as of Jan 25, 2019.

Also, each outstanding share of 5.70% Series C Non-Cumulative Perpetual Preferred Stock of TCF Financial will be converted into the right to receive one share of a newly created series of preferred stock of Chemical.

Upon completion of the deal, TCF Financial and Chemical Financial shareholders will own 54% and 46% of the combined company, respectively, on a fully diluted basis. The combined company’s board of directors will have 16 directors — eight from TCF Financial and Chemical Financial each.

Financial Benefits of the Deal

The merger is expected to be 17% and 31% accretive to earnings per share of Chemical Financial and TCF Financial, respectively, by 2020.

On a pro-forma basis, the business is expected to deliver top-tier operating and return metrics with cost savings on a fully-phased in basis, which includes Return on Average Tangible Common Equity of nearly 19%, Return on Average Assets of about 1.6% and Efficiency ratio of approximately 53%.

The transaction is expected to generate approximately $180 million in annual run-rate cost synergies by 2020, with minimal reduction in branches.

Our Take

The latest acquisition seems to be befitting and is likely to support TCF Financial’s prospects. Notably, restructuring efforts help it reallocate capital in core markets served. The company’s investments in technology in order to improve customer experience should bode well in the long term. 

However, declining fee income and persistent rise in expenses might deter bottom-line expansion of the company.

Shares of TCF Financial have recorded a slight gain so far this year compared with 5.6% growth of the industry it belongs to.

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

Stocks to Consider

First Business Financial Services FBIZ has witnessed 10.7% upward estimate revision over the past 60 days. The company’s shares have risen nearly 14% in the past six months. It has a Zacks Rank #2 (Buy) at present.

Mackinac Financial Corporation’s MFNC shares have rallied 13.4% in six months’ time. Further, the company’s earnings estimates for the ongoing year have moved 2.3% north in the past 60 days. The stock currently carries a Zacks Rank of 2.

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Chemical Financial Corporation (CHFC) : Free Stock Analysis Report
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