Comerica Inc. (CMA) has closed the acquisition of Sterling Bancshares Inc. (SBIB). All of the outstanding shares of common stock of Sterling were acquired by Comerica in a stock-for-stock transaction. The acquired company would augment its growth in Texas with a solid deposit base and well located branch network.
Per the agreement terms, Sterling shareholders received 0.2365 shares of Comerica common stock in exchange for each share of Sterling common stock they owned. Further, fractional shares were paid in cash.
The systems conversion is expected to be completed by the end of this year. Till that time, Sterling branches and ATMs will retain their identity while the branches will operate as a division of Comerica.
The acquisition is a strategic fit for Comerica as it would augment its Houston market share significantly. Comerica’s market share is expected to triple in that area. Besides, it would enable the company to foray into the attractive San Antonio and Kerrville regions and add to Comerica's banking center network in Dallas-Fort Worth.
Impact on Comerica
The acquisition of Sterling is expected to have minimal impact on Comerica’s Tier 1 ratio. The company expects its tangible common equity ratio to be about 10.5% on a pro forma basis. The transaction is expected to be at break-even to Comerica's earnings in 2012 and increasingly accretive thereafter.
Comerica estimated merger-related charges to be approximately $80.0 million after tax, with $25 million each in the third and fourth quarters of 2011 and the remainder in 2012. The company anticipates total acquisition synergies of around $56 million or 35% of Sterling expenses, with the majority to be realized in 2012. The company has incurred expenses of $5 million in association with the Sterling acquisition during the second quarter of 2011.
Our Take
The acquisition enhances Comerica’s growth opportunities with focus on middle market and small business. It leverages additional marketing capacity to offer a wide array of products and services through a larger distribution channel.
Such strategic expansion efforts bode well for Comerica. Capital deployment efforts also inspire investors’ confidence in the stock. Yet, its significant exposure to riskier areas such as commercial real estate markets, lack of meaningful loan growth and regulatory headwinds are the downsides.
Comerica currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. However, its peers such as Fifth Third Bancorp (FITB) and M&T Bank Corp. (MTB) currently have a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.
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