First Horizon National Corp. announced plans Monday to spend $3.91 billion in stock to buy Louisiana-based Iberiabank Corp. in a deal that would nearly double its total assets to $75 billion.
First Horizon, based in Memphis, Tenn., would gain a presence in three states in the transaction: Louisiana, Alabama and Arkansas. In addition, the bank would increase its presence in Georgia and Texas — it currently has just one branch in each state — and it would enter Atlanta for the first time. Iberiabank is based in Lafayette, La.
The banks said they would have branch presence in 15 of the top-20 metropolitan statistical areas in the Southeast, including the Triad, Charlotte and the Triangle.
The banks expect the deal to close in the second quarter of 2020, pending regulatory and shareholder approvals.
Investors responded to the deal by sending First Horizon’s share price to a 52-week high of $16.96 before it closed up 3.1%, or by 52 cents, at $16.94. Iberiabank’s share price fell 16 cents to close at $27.68.
The combined bank would be a top-25 U.S. financial institution covering 11 states. First Horizon shareholders would own 56% of the combined bank and have nine of the 17 board of directors representatives. Iberiabank shareholders would receive an additional 43% increase in their dividend upon the deal closing.
The proposed deal also removes a potential acquisition target for the combined BB&T Corp.-SunTrust Banks Inc. combination to be known as Truist Financial Corp. Analysts had said BB&T could have been interested in Iberiabank to bridge its branch gap between Alabama and Texas.
First Horizon had $41.9 billion in total assets and 280 branches as of Sept. 30, while Iberiabank had $31.7 billion in total assets and 191 branches.
“First Horizon gains access to the energy-rich markets of Louisiana and the Texas Gulf states, which have become quite valuable and prosperous under the Trump administration’s policy toward fossil-fuel energy sources,” said Tony Plath, a retired finance professor at UNC Charlotte.
“This is further evidence of the continuing consolidation of the mid-tier strata into increasingly larger banks in the financial services industry, providing yet another example how the industry favors scale in a post Dodd-Frank era.”
Plath cautioned, however, that First Horizon “really hasn’t shown that it’s very capable at integrating and managing the franchise that it’s built via consolidation over the years.”
“First Horizon’s market share remains stagnant in markets it’s entered, the operating costs remain high, indicating it’s yet to achieve the merger synergies they projected from past consolidation transactions, and its stock price has lagged the market through 2019.
“They do show evidence of improvement in 2019 over their performance in 2018, however, so perhaps they are learning to integrate and manage the things they’ve acquired, and their performance will continue to improve over time.”
There is very limited branch overlap outside Florida, where both banks have a presence on the southern Gulf Coast and around Miami and the Key Largo area.
First Horizon closed in November 2017 on its $2.2 billion purchase of Capital Bank Financial Corp., gaining 22 Triad branches that Capital acquired in 2012 from buying a struggling Southern Community Financial Corp. of Winston-Salem.
Meanwhile, Iberiabank has in N.C. only a branch at 1429 Westover Terrace in Greensboro and a loan production office in Charlotte.
In most bank deals billed as a “merger of equals,” the three main negotiation factors are the name of the combined bank, where it will be based and which management team will run it.
In this instance, First Horizon will be the surviving brand, and it will be based in Memphis while Iberiabank’s headquarters of Lafayette will have the retail banking operations.
Daryl Byrd, Iberiabank’s president and chief executive, would become executive chairman, while Bryan Jordan, First Horizon’s chairman and chief executive, would be chief executive and president.
“Separately, we are both formidable organizations with strong track records, great businesses and talented bankers,” Jordan said in a statement.
“Together, First Horizon and Iberiabank will create a powerful new company driven by our shared commitment to our customers, communities, shareholders and the employees we serve.
“Our combined new scale, deep experience in financial services and diverse business mix in the South uniquely position us to accelerate our growth and create lasting shareholder value,” Jordan said.
Byrd said the combined bank would have “the resources to invest in advanced technologies and expand lending capacity and product offerings for our combined clients.”
That was a prominent reason as well for BB&T’s plans to buy SunTrust in a deal currently valued at $26.7 billion and a combined $463.7 billion in total assets.
First Horizon and Iberiabank said they expect to generate about $170 million in pre-tax cost savings through targeting “redundancies in overhead, bank branches, operations and computer services.”
The banks also project $440 million in transaction expenses.
Plath said the deal also represents another signal that "once the current wave of regional bank consolidation is over, there won't be another era in American history when we see so much bank consolidation."
"There just aren't any new small banks in the current era, and that's not likely to change in the future. The banking industry changed so much in the wake of the 2008-09 recession that it no longer represents a viable business for small companies.
"That's why you just saw four out of the five (startup) bank applications in North Carolina collapse for want of start-up capital earlier this year," Plath said.