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The Deal: Umpqua Pays $2B for Sterling Financial

NEW YORK ( The Deal) -- Umpqua Holdings (UMPQ - Get Report) said Thursday, Sept. 12, it would acquire private equity-backed Sterling Financial (STSA) in a $2 billion deal that would create a massive West Coast regional bank.

Terms of the deal call for Portland, Ore.-based Umpqua to pay 1.671 shares and $2.18 in cash for each share of Sterling for total consideration of $30.52 a share, a premium of 26% over Sterling's price on Aug. 30, prior to word of a potential deal going public.

Private-equity firms Thomas H. Lee Partners LP and Warburg Pincus LLC, who each own about 20.8% of Sterling, have agreed to vote their shares in favor of the deal.

The deal would create a banking franchise with $22 billion in assets, $15 billion in loans and $16 billion in deposits and 394 branches spread across Oregon, Washington, Idaho, California and Nevada. It continues the aggressive expansion strategy of the one-time South Umpqua State Bank under the direction of CEO Ray Davis, which has included a number of deals for institutions that were battered by the downturn.

Spokane, Wash.-based Sterling turned to private equity in 2010 to raise capital, raising $442 million from Thomas H. Lee and Warburg Pincus. The bank in the years since has done a series of buys and sales to revamp its branch network, establishing itself as an attractive target in the process.

Josh Bresler, a managing director at THL, called the deal "the logical next step for Sterling," saying the merger "pairs two companies with exceptional management teams and franchises."

Umpqua's Davis, who will remain CEO post-deal, said the merger will create a lender with the scale necessary to compete with banking giants.

"With our size, shared cultures and financial strength, our combined organization will be uniquely positioned to deliver value for our associates, customers, communities and shareholders," Davis said. "We look forward to starting the process of bringing our companies together."

Post-deal Sterling CEO Greg Seibly will join Umpqua as co-president, and Sterling representatives will take four seats on Umpqua's 13 director board.

Umpqua was advised by J.P. Morgan Securities LLC and Wachtell, Lipton, Rosen & Katz, while Sandler O'Neill + Partners LP and Davis Polk & Wardwell LLP advised Sterling. A Weil, Gotshal & Manges LLP team of Michael Aiello and Heath Tarbert advised THL Partners, while Warburg Pincus tapped a Kirkland & Ellis LLP team of Eunu Chun, William Sorabella, Sergio Urias and Christian Nagler.
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