In one of the biggest banking combinations of 2013, Oregon’s Umpqua Holdings (NASDAQ:UMPQ) agreed to acquire regional lender Sterling Financial (NASDAQ:STSA) late Wednesday for $2 billion.
The transaction creates the largest West Coast community bank, with 394 locations in five states, about $22 billion in assets and $16 billion in deposits.
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After the deal closes, Spokane, Wash.-based Sterling Financial will operate under the Umpqua name and brand and the combined company will be led by Ray Davis, who is president and CEO of Umpqua. Sterling CEO Greg Seibly is set to join the new company as co-president.
Umpqua, which is based in Portland, agreed to pay 1.671 in shares and $2.18 in cash for each share of Sterling. Those terms give the deal a value of $30.52 a share, a roughly 15% premium on Sterling’s closing price of $26.55 on Wednesday.
“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,” Davis said in a statement.
The combined bank will have a presence in five West Coast states: California, Idaho, Nevada, Oregon and Washington.
Umpqua said it expects the deal to boost its 2015 operating EPS by 12% with 100% of planned synergies phased in.
“We admire Umpqua's shared commitment to community banking and look forward to working with them to create one of the strongest, most innovative community banks in the country,” Seibly said.
The deal is expected to close during the first half of 2014, subject to shareholder, regulatory and other approvals.
Under the terms of the deal, the combined company will have 13 directors: nine representatives from Umpqua and four from Sterling.
The transaction has already received support from Thomas H. Lee Partners and Warburg Pincus, the two largest Sterling shareholders that each own about 20.8% of the bank’s stock.
“We have been very pleased with what Sterling has achieved since we made our investment in 2010, and are delighted with the decision to combine with Umpqua,” said David Coulter, Warburg Pincus’s vice chairman.
Shares of Sterling jumped 11.68% to $29.65 in premarket trading Thursday morning on the deal, while Umpqua ticked up 0.24% to $17.00.
JPMorgan Chase (NYSE:JPM) served as Umpqua’s financial advisor, while Sandler O’Neill advised Sterling.