More than two months after announcing a controversial deal to sell itself at a discount, Talmer Bancorp in Troy, Mich., laid out its rationale.
The $6.6 billion-asset company reckoned that a broad swoon in the stock market shouldn't overshadow the benefits of joining the much larger Chemical Financial in Midland, Mich., based on details laid out in a recent
The filing also for the first time detailed the company's previous flirtations with prospective merger partners — and what happened when employees caught wind of the talks.
-
Talmer agreed to sell itself in a privately negotiated deal that values the company at 150% of its tangible book value. For some analysts and investors, the company should have considered an auction or not selling at all.
January 26 -
Chemical Financial in Midland, Mich., has agreed to buy Talmer Bancorp in Troy, Mich.
January 26 -
Univest Corp. of Pennsylvania was negotiating to buy Fox Chase Bancorp when its stock plummeted in August. The decline prompted Fox Chase to seek other offers, while forcing Univest to adjust its proposal to prop up the deal value.
February 29 -
Great Western and HF Financial spent nearly four months going back and forth over their merger's terms in the midst of a swoon in overall stock prices. Negotiations included at least six changes in the proposed price and five proposals for the termination fee.
March 3
Talmer and Chemical spent 16 months informally discussing a deal as Chemical focused on integrating a prior acquisition, the filing revealed. The companies finally agreed on a letter of intent on Dec. 22.
By that time, the stock market was well into a prolonged slump that had already forced several other banks to
When they announced the
The filing lays out several reasons why Talmer's board agreed to the merger despite the discounted pricing. The valuation, for instance, always represented a significant premium compared to Talmer's initial public offering in 2013.
While Talmer's board also determined that the declining value was largely a function of a bigger selloff in the stock market, the filing noted that the $9.2 billion-asset Chemical's stock was underperforming those of its peers due to "apparent market concern" it could reach $10 billion in assets "without engaging in a material transaction." At that size, additional regulatory burdens would kick in.
Chemical plans to address that issue by using economies of scale from buying the $6.6 billion-asset Talmer to offset bottom-line hits it will take — including $5 million in reduced annual interchange fees and $2 million in added compliance costs each year — from crossing the regulatory threshold.
The filing provided several other reasons why Talmer's board backed the merger, including the potential for higher dividends, earnings per share accretion and the creation of a larger bank in Michigan.
The board also considered "that Chemical had performed relatively well in the most recent economic downturn," the filing said.
Talmer's directors were also advised that the decline in Chemical's stock price "had provided additional leverage … to use in negotiating for [a] merger consideration that was at the highest end of the range set forth in the letter of intent."
In addition, "the stock price volatility had not affected the relative contributions of the parties with respect to assets, loans, deposits, tangible common equity or net income."
Talmer, meanwhile, had plenty of experience with considering a merger following its 2013 initial public offering. The company, from March 2014 to July 2015, had conversations with at least five other institutions about a merger of similarly-sized banks or an outright sale, the filing disclosed.
Despite talks with numerous suitors, only one company, a "substantially larger institution," got far enough along to conduct due diligence, the filing said. During that process, knowledge of the merger talks spread to Talmer's employee ranks, prompting the company last summer to "institute new retention incentives to retain certain key personnel."
The filing also disclosed the expected roles for certain Talmer executives after the Chemical deal is completed in the second half of this year.
David Provost, Talmer's president and chief executive, would become Chemical's vice chairman of growth strategy. Dennis Klaeser, Talmer's chief financial officer, would become chief strategy officer, while Thomas Shafer, president of Talmer Bank and Trust, would become an executive vice president of Chemical Bank. Provost and Klaeser would serve initial 24-month terms following the deal's completion.
