MetroCorp said Tuesday that the State of California Department of Business Oversight approved the merger application and that the Federal Reserve Bank of San Francisco has indicated it has no objections to the deal without the filing of a formal application.
Required approvals from the Texas Department of Banking and the China Banking Regulatory Commission--East West has bank operations in China--are also in hand. Texas gave its nod based on the Federal Reserve waiver and the Department of Justice waiting period following Fed bank merger approvals has passed, a source said. The China process is also complete as far as the companies' ability to close the deal is concerned, the source said.
MetroCorp shareholders are scheduled to vote on the merger Dec. 16.The companies currently expect to close the deal before the end of January and Jan. 17 is a target date. The terms of the transaction are defined in part by MetroCorp's tangible equity at the end of the month prior to the merger close, which will be the December month. MetroCorp will have to close their books before the deal close. The merger calls for East West to acquire MetroCorp shares for the lesser value of $14.60 per share or 1.72 times the per share adjusted tangible equity of MetroCorp. The tangible equity is calculated by reducing total equity by intangible assets, goodwill and preferred equity. According to the proxy, as of Sept. 30, 2013 MetroCorp's tangible equity was about $165.76 million, based on shareholders' equity of $180 million less intangible assets and goodwill of $14.4 million. The merger agreement also calls for a $7 million adjustment that puts the figure at $158.76, which multiplied by 1.72 times gives $273.065 million, or about $14.60 per share based on 18.69 million shares outstanding. There are other adjustments that will affect tangible equity, such as bonus retention payments, advisor fees and severance agreements, some of which has East West has said it would cover. MetroCorp's tangible equity was up 3% during the fourth quarter, but there is no guarantee that the fourth quarter performance will result in a final number that meets or tops the $14.60 level. MetroCorp shares traded Wednesday at $14.25 at a spread of 35 cents, or 2.4%, to a $14.60 deal. The merger consideration is to be paid two-thirds in East West shares and one-third in cash. The value of the East West shares will be based on a 60-day pricing period ending on the fifth trading day prior to the close. If the companies hit the Jan. 17 target date, the pricing period will have begun on Oct. 16. As such, the volume weighted average price for east West shares two-thirds of the way through the pricing period would be $33.97.
The complex merger terms also call for a collar such that if East West prices over $32 or under $28 those prices are used to determine the exchange ratio. Based on the current average for East West, MetroCorp shares are worth 0.3042 of an East Coast share and $4.87, to cash to get to $14.60.
-- By Scott Stuart in New York.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV