For the sake of income diversification, National Bank of the Valley (VLY – Free Report) signed an agreement to acquire the US banking arm of Bank Leumi Le-Israel BM – Bank Leumi USA – for $ 1.15 billion. The deal is expected to close at the end of Q1 or early Q2 2022.
With this acquisition, Valley National will be able to broaden its commercial product offering and expand its technology banking and venture capital businesses, further strengthening its position as a leading relationship-oriented commercial bank. The pro forma company, which will be formed as a result of the merger, will be the 29th publicly traded US bank in terms of assets.
Bank Leumi, which provides full-service relationship banking services for mid-market commercial clients and private banking services for high net worth individuals, had total assets of $ 8.4 billion and $ 5.4 billion in loans. gross as of June 30, 2021. strategically distributed network as it operates five sales offices in New York, Los Angeles, Palo Alto, Chicago and Miami.
Notably, in May, Bloomberg announced that Bank Leumi Le-Israel BM was considering selling the unit as part of an investment deal with two minority shareholders – Endicott Group and MSD Capital LP. At that time, people familiar with the matter said that Bank Leumi Le-Israel BM could get around $ 1 billion for the unit.
Terms of the agreement and financial impact
Under the agreement, Bank Leumi shareholders will receive 3.8025 common shares of Valley National as well as $ 5.08 in cash (subject to specified adjustments) for each of their shares held. Once the transaction is completed, Bank Leumi Le-Israel BM will own more than 14% of the common shares of Valley National.
The transaction is expected to be 7% accretive to Valley National’s earnings (on a fully phased basis) in 2023. A 1% dilution of tangible book value is expected, which will be recovered in almost a year.
At closing, the deal is expected to be effectively neutral for Valley National’s tangible common stock to tangible asset ratio.
Notably, Valley National and Bank Leumi Le-Israel BM have also entered into an agreement providing for an ongoing business relationship, including loan stakes and client referrals, which will allow Bank Leumi Le-Israel BM to expand its business to United States.
Effective and subject to the amalgamation, Valley National will add two directors appointed by Bank Leumi Le-Israel BM to its board of directors. Bank Leumi Le-Israel BM has agreed to a four-year block on Valley National common stock to be issued as part of the transaction, with 25% of the shares released from the block on each anniversary of closure. In fact, after the shutdown, Bank Leumi Le-Israel BM will be subject to the usual voting and standstill agreements.
Valley National Chairman and CEO Ira Robbins said, âWe are extremely excited about the tie-up with Bank Leumi and the various growth opportunities we expect from the partnership. Bank Leumi’s unique deposit verticals, including technology and venture capital activities, will continue the significant improvement in funding we have made over the past few years. On the lending side, Bank Leumi will add diversification into niche C&I segments and new geographic areas, particularly in California and Illinois. “
Bank Leumi Le-Israel BM CEO Hanan Friedman said: âFor Leumi, this is a strategic move designed to deepen and expand our exposure in the United States. United States This is good news for our business and technology customers, who will benefit from a broader range of product offerings and the capabilities of a leading and successful US bank.
Similar to other mid-sized banks like Independent Bank Corp. (INDB – Free report), FNB Company (ETFs – Free report) and BancorpSouth (BXS – Free Report), Valley National implemented inorganic expansion plans to diversify its revenue mix in a low interest rate environment. In June, it announced a share capital agreement to acquire The Westchester Bank Holding Corporation.
Additionally, Valley National is leveraging digital technology and launched its online banking – Valley Direct. This will help the company move beyond its current footprint in New York, New Jersey, Florida and Alabama.
So far this year, shares of Valley National have gained 32.3% from industry growth of 30.3%.
Image source: Zacks Investment Research
Currently, Valley National carries a Zacks Rank # 3 (Hold). You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.