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Cathleen Nash lays out Citizens Republic's reasons for selling itself to FirstMerit, and says she expects many more banks to face the same tough choice.
November 14 -
FirstMerit will have to spend major investor equity to buy struggling Citizens Republic, but its shares are strong enough to afford the deal and the fit would be that good, FirstMerit CEO Paul Greig says.
September 13
This downgrade could be viewed as the validation of a controversial deal.
FirstMerit (FMER) in Akron, Ohio, was downgraded to a "hold" from a "buy" in recent days by R. Scott Siefers, an analyst with Sandler O'Neill. He changed his rating because FirstMerit's stock is getting more expensive. It has risen 50% since a large sell-off last year after its
For other acquisitive bankers, particularly those on the cusp of big deals, the market's eventual warm-up to the FirstMerit-Citizens Republic deal is positive. Every deal is measured on its own merits, but if buyers are fearful of a negative market reaction, FirstMerit's performance is proof that sometimes skeptical investors can be won over ... eventually.
"Given what their stock is doing, I think it should add confidence that deals that strategically and financially make sense will be well received," says Terry McEvoy, an analyst at Oppenheimer. "The market might put some pressure on it, but at least in this case, it has recovered and then some."
The outlook last fall was much grimmer, putting FirstMerit Chief Executive Paul Greig on the defensive from day one.
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When Siefers advised investors to buy the stock in November, it was in a tailspin.
"The stock was out of favor when we upgraded it," Siefers said in an interview. "We thought it was being overly punished following the transaction announcement. Since then, investors have become more comfortable with the deal and are more focused on the benefits, and the stock has rebounded."
The $912 million stock deal was
"This deal got them into new markets, but it wasn't a cost savings transaction, and they were buying a bank that just a few years ago was considered depressed and at risk," McEvoy says.
FirstMerit's stock continued to fall through November, when the stock was around $13, down from $17 on the eve of deal's announcement.
But investor attitudes slowly changed. First Merit
FirstMerit's stock closed Friday at $20.03.
The deal will be ultimately judged on how well FirstMerit integrates Citizens Republic and its ability to hit its targets. Investors are watching for the
Smaller, but equally transformative deals announced this year, such as
Stephen Geyen, an analyst at D.A. Davidson, says that the market was skeptical of FirstMerit's ability to
"The metrics have not changed, they've stayed fairly consistent," Geyen said. "But management was more forthcoming in conference calls and investor conferences about where they see the potential."