The biggest U.S. banking deal since the Great Recession of 2008 will see BB&T Corporation of North Carolina acquire Georgia-based SunTrust Banks Inc. to create the sixth largest banking group in the United States in terms of assets and deposits.
BB&T will buy SunTrust Banks for $28 billion in an all-stock deal to form a banking behemoth valued at a combined $66 billion. The resulting company has yet to be given a new name but will be based in North Carolina, the location of BB&T's corporate headquarters.
Both banks are terming the acquisition of a "merger of equals," said CNBC. The deal should close by the fourth quarter. Analysts expect the merger to receive regulatory approval from the federal government.
The combined company will have more than $442 billion in assets; $301 billion in loans and $324 billion in deposits. The deal will likely generate annual cost savings of $1.6 billion by 2022. It will generate an internal rate of return of about 18 percent.
It will see SunTrust shareholders receive 1.295 shares of BB&T for each share they own. The per share deal value of $62.85 is a 7 percent premium to SunTrust's closing price on Wednesday, said Reuters.
Shares of SunTrust rose 10 percent to $64.60 before the opening bell Wednesday (which is above the acquisition price). On the other hand, the share price of BB&T rose 5 percent to $51.20. BB&T shareholders will own 57 percent of the combined company; SunTrust will own the rest.
BB&T CEO Kelly King will become CEO of the combined company until Sept.12, 2021, after which SunTrust CEO William Rogers Jr will take over.
Ahead of the combined firm in the list of the largest U.S. banks are more familiar names. The top five banks in the U.S. are J.P. Morgan Chase with assets of $2.62 billion; Bank of America ($2.35 billion); Citigroup ($1.92 billion); Wells Fargo ($1.90 billion) and U.S. Bancorp ($467.4 million).
The new bank's reach will cover the East Coast and will retain operations in Winston-Salem, North Carolina, and Atlanta, Georgia, the home markets for both banks.
Analysts said investors should anticipate more regional bank mergers like BB&T and SunTrust due to the changed and arguably more favorable environment in the banking sector. The federal government seems intent on easing Great Recession regulations that restricted expansion and added more regulatory scrutiny on big banks.
The corporate tax windfall stemming from the Tax Cuts and Jobs Act of 20117 lowered corporate tax rates while freeing-up capital. Wall Street has long been anticipating a wave of deal making in the banking sector because of these factors.
