What executives tout as a “merger of equals” with Chemical Financial Corp. represents what one institutional shareholder for Talmer Bancorp Inc. considers a deal that should get voted down.
Richard Glass, portfolio manager for Deutsche Bank in New York City, complained during a conference call to discuss the $1.1 billion deal that it undervalues the Troy-based Talmer (Nasdaq: TLMR).
Glass called the transaction value a “distressed price” for a bank that has reported good earnings and loan growth, and he accused Talmer directors and management of not upholding their fiduciary duties to shareholders.
“As Talmer shareholders, we are incredibly disappointed,” Glass told executives during the conference call. “You guys can call it whatever you want, but if this is a ‘merger of equals,’ one party is clearly more equal than the other.
“From our perspective, the valuation is not great at all. I’d say it’s lousy.”
Under terms of the transaction, shareholders of the Troy-based Talmer (Nasdaq: TLMR) will receive $15.64 per share and 0.4725 shares of Chemical Financial stock for each of their shares. Pending regulatory and shareholder approvals, the two banks expect the deal to close in the second half of 2016.
The transaction value also drew questions today from brokerage analyst Steve Alexopoulos of JP Morgan. He was “quite surprised” at the transaction price that “seems like a great deal for Chemical.” Alexopoulos noted that Chemical Financial’s share price rose soon after the deal was announced this morning while Talmer’s fell.
“In my mind, it’s a no-premium transaction,” he said as he asked for an explanation on the transaction price.
In response to questions, Talmer executives said they did not shop the bank around and that greater shareholder value will come as the two banks combine, create efficiencies and grow together.
“We view this as a fantastic deal for our shareholders. We’re looking at combining with a great company,” said Talmer CEO David Provost.
Replying to Glass, Provost said: “There is a tremendous opportunity for us to build value for our shareholders. We are not done building value for the shareholders. There is a lot of market share for us to capture. There are many acquisitions for us to do, and that is going to build value for our shareholders over time. You might be a little shortsighted, but we are not. We are looking at building value over time for our shareholders.”
The merger “provides a lot more value for our shareholders, given the accretion to our shareholders and a very significant step up in cash flow coming out of dividends” that Chemical pays, Talmer Chief Financial officer Dennis Klaeser said. Chemical, as it has done the last five years, will provide consistent earnings and dividend growth as well, Klaeser said.
“The combined company is a top-performing enterprise,” he said. “This basically leaps us forward two-plus years in terms of the level of earnings per shareholder that come to our shareholders.”
Talmer, the holding company for Talmer Bank and Trust, has 51 branches and lending offices in Michigan, plus locations in Ohio, Illinois, Indiana, and Nevada with about $6.6 billion in assets. In West Michigan, Talmer has offices in Grand Rapids, Portage, Holland, Muskegon and Grand Haven from when it bought the assets of the former Michigan Commerce Bank in early 2014 from the bankrupt Capital Bancorp.
The cash-and-stock deal will give the Midland-based Chemical Financial (Nasdaq: CHFC) more than $16 billion in assets and 266 offices, mostly in Michigan and northeast Ohio. The merger will move Chemical Financial into the Southeast Michigan market for the first time and extend the bank’s reach outside of Michigan.
The two banks have little market overlap with just seven offices facing possible consolidation, according to Chemical Chairman, President and CEO David Ramaker.