One Didn't Know It, But Merger Partners Had Talks Years Earlier

It played out like a Hollywood script.

First Mid-Illinois Bancshares in Mattoon was told in December about a chance to bid on an unnamed bank. Imagine the surprise when the leaders of the $2.1 billion-asset company found out, after signing a confidentiality agreement, that they had unsuccessfully courted the bank — First Clover Leaf Financial in Edwardsville, Ill. — a few years earlier.

First Mid and the $644 million-asset First Clover Leaf initially discussed a merger in mid-2012, according to documents recently filed in conjunction with the companies’ planned $90 million merger. First Mid had planned to bid $10.75 a share, and was preparing an offer, before First Clover Leaf backed out of talks in early 2013.

Time has a way of changing perspective.

First Clover, disappointed by unsuccessful efforts to buy a bank in 2014 and 2015, hired an investment bank in October to help it look for a potential buyer. The issue for First Clover Leaf had been its stock price, which “was not trading at a high enough value to make an attractive acquisition proposal,” the filing said.

The investment bank, starting on Oct. 30, contacted six institutions — but not First Mid — that First Clover believed would be interested in buying a bank with operations around St. Louis and would be able to offer a “compelling price and … a high level of banking services.” While four banks expressed interest and signed documents necessary to find out First Clover’s identity, only two made offers.

First Clover Leaf added First Mid to its list of prospects in November after noticing a significant improvement in First Mid’s stock price. (First Mid’s stock price rose nearly 4% in November.)

First Mid, which had just raised capital the prior summer, discovered First Clover Leaf’s identity after a confidentiality agreement was signed on Dec. 11.

During a first round of bidding in early December, an unnamed bank offered to pay $12.50 to $13.50 a share in cash and stock; the institution also wanted to vet First Clover Leaf’s credit card portfolio. A second unnamed bank offered $12.25 a share in cash.

First Mid’s initial offer, presented in early January, valued First Clover Leaf at $12 a share, with 60% of the consideration involving stock. First Clover Leaf’s investment bank told First Mid that it would have to increase its offer to conduct credit due diligence.

One of the competing banks was largely ruled out by First Clover Leaf after it lowered its bid. The other bank increased its bid to $13 a share in cash, but it also wanted time to review First Clover Leaf’s credit card portfolio.

First Mid in late January raised its bid to $12.75 a share, including a higher percentage of stock to boost the amount. First Mid was also allowed to review First Clover Leaf’s 75 biggest credits. Following the review, First Mid increased its offer to $12.87 a share.

The other bank backed out in mid-February, based largely on a determination that First Clover Leaf’s markets “did not meet its desired targets,” the filing said. First Mid wasn’t informed that the other bank had walked away.

By March, First Mid and First Clover Leaf were exchanging drafts of a merger agreement and conducting more due diligence. Various directors of both companies met on April 18 to discuss strategies and philosophies.

The boards approved the merger shortly afterward, and the deal was announced on April 26. The filing noted that Robert Cook, a First Mid director who owns less than 1% of First Clover Leaf’s common stock, abstained. The transaction is expected to close in the fourth quarter.