Umpqua Holdings To Buy Sterling Financial For $2.0 Bln In Cash, Stock

(RTTNews) - Financial holding company Umpqua Holdings Corp. (UMPQ) agreed Tuesday to acquire Sterling Financial Corp. (STSA) in a deal cash and stock valued at about $2.0 billion. The deal, which has the unanimous approval from the boards of directors of both companies, is expected to close in the first half of 2014.

"Together, Umpqua and Sterling will create something unique in the financial services industry, an organization that offers the products and expertise of a large bank but delivers them with the personal service and commitment of a community bank," Umpqua President and CEO Ray Davis said in a statement.

The deal will see Sterling shareholders receive a fixed exchange ratio combination of 1.671 shares of Umpqua stock and $2.18 in cash per Sterling share. The offer price represents a total consideration of $30.52 per share, based on Umpqua's closing share price of $16.96 on Wednesday, also representing an hefty 80 percent premium.

Umpqua said it expects the deal to be 12 percent accretive to 2015 operating earnings per share with 100 percent of synergies phased in.

A deal will enable Portland, Oregon-based Umpqua Holdings to expand its operations in California, with Umpqua bank doubling the size of its assets to about $22 billion and branches to 394 across the five states of Oregon, Washington, Idaho, California and Nevada. The combined entity will also have $15 billion in loans and $16 billion in deposits, with 5,000 associates.

Sterling Financial operates the second-largest bank in Washington by deposit market share. The deal will now create West Coast's largest community bank.

Spokane, Washington-based Sterling Financial, the bank holding company for Sterling Savings Bank, is partly owned by private-equity firms Warburg Pincus LLC and Thomas H. Lee Partners L.P. after they invested a combined $278 million in May 2010 for a near 42 percent ownership interest in Sterling Financial. Sterling had then raised a total of at least $720 million of capital from different sources.

As of June 30, 2013, Sterling Financial had assets of $9.94 billion and operated about 170 depository branches in Washington, Oregon, Idaho and California.

"With our size, shared cultures and financial strength, our combined organization will be uniquely positioned to deliver value for our associates, customers, communities and shareholders. We look forward to starting the process of bringing our companies together," Davis added.

The deal is primarily subject to approval by each company's shareholders, and regulatory approvals. Warburg Pincus and Thomas H. Lee, each owning 20.8 percent of Sterling's outstanding common stock, have agreed to vote in favor of and fully support the deal.

Following the closure of the deal, Sterling will operate under the Umpqua Bank name and brand, with existing Umpqua shareholders owning about 51 percent of the combined entity, and Sterling shareholders owning about 49 percent.

Umpqua Holdings will also continue to be led by Davis, with Sterling president and CEO Greg Seibly joining Umpqua Bank as co-president and Umpqua Bank co-president Cort O'Haver serving in the same capacity.

The combined entity will have a 13 member board having nine nominees from Umpqua, and four from Sterling, which will include one each from Warburg Pincus and Thomas H. Lee. Meanwhile, Peggy Fowler will continue as board chair.

"Sterling has emerged from its 2010 recapitalization a stronger, more profitable ban. Over the past ten quarters we have consistently demonstrated a trend of improved profitability because of our employees' unwavering commitment to their customers and their communities," Seibly stated.

The proposed deal is billed as the second-largest deal in the U.S. banking sector in 2013 after the $2.3 billion cash and stock deal agreed upon in July for bank holding company PacWest Bancorp (PACW) to acquire CapitalSource, Inc. (CSE). The deal is currently expected to close in the first quarter of 2014.

UMPQ closed Wednesday's regular trading session at $16.96, down $0.23 or 1.34% on a volume of 0.77 million shares, and STSA closed at $26.55, down $0.59 or 2.17% on a volume of 0.40 million shares.