Fifth Third Bancorp (NASDAQ:FITB) is taking over its smaller rival MB Financial Bank of Chicago (NASDAQ:MBFI) for US$4.7bn, as it looks to widen its reach in Chicago.
By combining forces, the merger will create the fourth-largest bank in Chicago in terms of deposits, as the merged group will control 6.5% of the city’s deposit market share.
“We view MB Financial as a unique partner in our efforts to build scale in this strategically important market,” said Greg Carmichael, Fifth Third’s president and chief executive, in a statement.
In response to the news, investors sent shares in Fifth Third Bancorp down 7.8% to US$30.94 while MB Financial’s shares soared 13.17% to US$49.40.
About 90% of the deal will be funded in stock and the remainder in cash.
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Based on last Friday’s closing price of Fifth Third, holders of MB Financial’s stock will receive US$54.20, which will consist of 1.45 shares of Fifth Third stock and US$5.54 in cash for each share of MB Financial’s stock.
That payout represents a premium of about 24% to MB Financial’s closing share price of US$43.65 on Friday.
Mitchell Feiger, president and chief executive of MB Financial, has been named chairman and chief executive of the Chicago region for the combined bank.
Fifth Third hopes for pretax cost savings of US$255mln yearly after the deal closes by the end of the year.
Citi served as a financial advisor to Fifth Third Bancorp and Simpson Thacher & Bartlett LLP as its legal adviser while Sandler O’Neill served as a financial advisor and Silver Freedman Taff & Tiernan LLP were legal advisers to MB Financial.
The transaction is subject to closing conditions.