Detroit-based Chemical Financial Corp. and TCF Financial Corp., headquartered in Wayzata, Minn., announced a definitive agreement under which the companies will combine in an all-stock merger of equals transaction. Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, TCF will merge into Chemical, and the combined holding company and bank will operate under the TCF name and brand following the closing of the transaction.
The merger combines two complementary banking platforms to create a Midwestern bank that will be uniquely positioned to capitalize on market opportunities and broaden the channels and customers it serves through increased scale and expanded product offerings, the companies said. The combined company will have approximately $45 billion in assets, $34 billion in total deposits and more than 500 branches across nine states, including four of the top 10 Midwest markets. It will leverage the strengths of Chemical’s community banking and wealth management capabilities with TCF’s large deposit franchise and expertise in wholesale lending on a national basis, according to the announcement.
“With a shared strategic vision and increased scale and capabilities, our two complementary banking platforms will be positioned to better serve our customers and communities,” said Gary Torgow, Chemical’s chairman. “The combination of TCF and Checmical creates the largest midcap bank in the Midwest, poised to deliver double-digit EPS accretion for each set of shareholders, significant cost synergies, top-tier return metrics, a more diversified balance sheet and a lower risk profile. We also share a deep commitment to supporting a giving back to the communities we serve.”
TCF Chairman, CEO and President Craig Dahl said, “We are confident that this merger will enhance our ability to deliver stronger and more sustainable growth and greater value creation than either company could achieve alone. The new TCF will have attractive positions in both its product suite and market footprint as well as a more diversified loan portfolio and increased lending capabilities across asset classes, geographies and industry verticals. Through improved profitability and earnings predictability, we will be able to reinvest in the business to drive multiple growth engines, enhance our ability to compete in the next generation of banking and consistent return on capital for shareholders. We believe the combined company will also create new opportunities for our employees and enable us to attract and retain top talent.”
The transaction is projected to deliver 17 percent EPS accretion to Chemical and 31 percent EPS accretion to TCF by 2020, with a tangible book value earn-back period of 2.7 years. Pro forma merged company financial metrics are based on each company’s stand-alone consensus median analyst estimates, estimated combined company cost synergies, anticipated purchase accounting adjustments and the expected merger closing time-frame.
On a pro forma basis, the business is expected to deliver top-tier operating and return metrics with cost savings on a fully phased in basis, including return on average tangible common equity of approximately 19 percent; return on average assets of approximately 1.6 percent; and efficiency ratio of approximately 53 percent. In addition, the transaction is expected to generate approximately $180 million in annual run-rate cost synergies by 2020, with minimal reductions in branches.
Under the terms of the agreement, TCF shareholders will receive 0.5081 shares of Chemical common stock for each share of TCF common stock based on a fixed exchange ratio, equivalent to $21.58 per TCF share based on the closing price as of Jan. 25. Upon completion of the deal, TCF and Chemical shareholders will own 54 percent and 46 percent of the combined company, respectively, on a fully diluted basis.
The combined company will be headquartered in Detroit and maintain a significant operating presence in Minneapolis as well as Midland, Mich., and Chicago. Torgow will serve as executive chairman and Dahl will serve as CEO and president. David Provost, Chemical Financial’s president and CEO, will become chairman of the combine bank, and Tom Shafer, president and CEO of Chemical Bank, will become president and chief operating officer. The combined company’s board of directors will have 16 members, consisting of eight from each company.
The merger is expected to close late in the third or earl in the fourth quarter.