Fifth Third Bancorp to buy MB Financial for $4.7 billion

Broadening its presence in the regional markets further, Fifth Third Bancorp (FITB) agreed to acquire MB Financial (MBFI) in a cash-and-stock deal, creating the fourth largest bank in terms of deposit in the Chicago region. The $4.7-billion deal complement’s the bank’s long-term strategy to re-evaluate its branch network and grow in the key markets of Chicago, Tennessee, Florida, and Georgia.

It is expected that reduced regulatory constraints will add steam to Fifth Third’s expansion initiatives in the coming months. The purchase price represents a 24% premium to the shareholders of MB Financial, the holding company for MB Financial Bank. As part of the agreement, two members of MB Financial will join the board of directors of Fifth Third, while the former’s CEO Mitch Fieger will assume the role of chairman and CEO for the Chicago region.

“We view MB Financial as a unique partner in our efforts to build scale in this strategically important market. Customers of both banks will benefit from greater convenience and the complementary capabilities that our banks, together, can offer,” said Fifth Third Bancorp CEO Greg Carmichael.

As part of the agreement, two members of MB Financial will join the board of directors of Fifth Third

The transaction is expected to be modestly accretive to Fifth Third’s operating earnings in the first year, and by 7% in the second year. Meanwhile, the bank is looking to complete its previously announced share repurchase program before the proxy solicitation in connection with the vote of MB Financial shareholders.

The banking sector is witnessing a shift in focus to regional expansion amidst concerns of asset quality getting affected by increasing interest rates, though there is a modest improvement in profitability. Meanwhile, taking a cue from uncertainties related to the recent tax reform and new trade policies, most banks are exploring ways to revise their operating model.

Shares of Fifth Third, which in mid-March had reached the highest level since the fiscal crisis, ended the last session lower and lost more than 5% in premarket trading Monday.  Buoyed by the reports of the buyout, MB Financial shares jumped nearly 16%.