Updated to include Thursday's opening stock price

GULFPORT, MISS. (

TheStreet

) -- Shares of

Hancock Holding Co.

(HBHC)

were beaten to a pulp on Wednesday after investors became concerned that the $8.2 billion-asset regional bank was paying far too much for its larger rival,

Whitney Holding

( WTNY).

The two Gulf regional banks announced an all-stock merger early Wednesday in which Whitney shareholders would receive 0.418 shares of Hancock's common stock per one share of Whitney's stock. The exchange value of Whitney shares would be $15.48, based on Hancock's Dec. 21 closing price of $37.04 - a premium of 42% based on Whitney's closing stock price of $10.87 and a total deal value of just about $1.5 billion.

The combined Gulf Coast-based bank will have approximately $20 billion in assets; $16 billion in deposits; $12 billion in loans and 305 branches across Texas, Louisiana, Mississippi, Alabama and Florida.

Hancock expects to realize "substantial" cost savings of $134 million before taxes once the merger is fully phased in by 2013, it said. It also expects EPS accretion of 19% by that time.

Regional bank M&A

is starting to gather steam as the year comes to an end. Many sector observers are predicting bank M&A to pick up in the new year through 2013 as banks - particularly smaller regional banks - have trouble dealing with ongoing credit headwinds and revenue challenges given the new regulatory environment.

While the deal is certainly an early Christmas present for Whitney shareholders, whose shares have plummeted since April 23, when the stock hit a 52-week-high of $15.29. Based on Tuesday's closing price, the stock was down 29% from its high in April. Whitney shares made up for the loss, gaining an equal 29% to close at $14, following news of the deal on Wednesday.

But, Hancock shareholders are another story. The stock shed 6.6% on Wednesday, to close at $34.58 over concerns that the bank was overpaying as well as concerns that Hancock has not marked Whitney's troubled CRE portfolio, mainly construction and development loans, as aggressively as it should have.

Hancock shares were falling 0.3% to $34.48 shortly after Thursday's market open. Whitney Bank's stock was rising 0.2% to $14.02.

Moody's Investors Service on Wednesday placed all long-term and short-term ratings of Hancock and its subsidiaries under review for possible downgrade. Moody's currently has an A2 issuer rating on the holding company. Its lead bank, Hancock Bank, is rated B- for unsupported bank financial strength, the ratings agency said.

The downgrade review will focus on merger integration challenges, as Whitney is "40% larger than its size and has asset quality problems," Moody's said. It will also look at how aggressively Hancock writes down Whitney's loan portfolio as well as the expected performance of the large commercial real estate exposure of both companies and, finally, Hancock's capital management plans.

However, on a conference call Wednesday to explain the merger, Hancock executives attempted to assure investors that all is well.

Hancock's CEO Carl J. Chaney said that the transactions would be "low risk" for Hancock and that the timing of the deal was "absolutely perfect," given Whitney's impending bulk sale of nonperforming loans.

"This partnership was a dynamic, strong, strategic move for both organizations," Chaney said during the conference call. "Financially, this is a home run for shareholders of both organizations."

Whitney said in October that it would sell approximately $180 million of nonperforming loans and would reclassify an additional $100 million of nonperforming loans as so-called held for sale loans.

With the help of some purchase accounting, Hancock plans to further mark down Whitney's troubled loans by 6% or $447 million, Chaney said.

"The saddle of all those

credit quality issues for the most party will be removed," Chaney said during the call. "And we can focus .. on growing this franchise and the many opportunities we have as a combined institution."

Further, even though the bank is raising some $200 million in capital to pay off Whitney's outstanding TARP funds, Hancock has no plans to cut its 24 cent quarterly dividend post-transaction, Chaney said.

The deal's announcement comes almost exactly a year to the day after Hancock bought People's First Community Bank in a loss sharing agreement with the FDIC, and in an interview with

TheStreet

Chaney sounds like he's far from finished.

"Opportunities are abound, let me tell you, not just FDIC deals but it's been amazing how the number of live bank deals has really increased," Chaney says. "The number of books that we've been able to see that are coming across our desk--there's been a significant increase over this time last year so you'll see us continue to grow but we're first going to focus all of our attention on making sure we properly integrate this merger then we'll look at other deals if they have strategic sense and strategic value to our business model," he says.

Bob Patten, an analyst at Morgan Keegan, a subsidiary of

Regions Financial

(RF) - Get Report

, expects Hancock shares to remain weak over the next few days as investors digest the deal.

"The clear positive is that the transaction makes long term strategic sense, creating a $20 billion asset Southeastern franchise that given its combined size should allow the pro-forma institution to pursue additional growth opportunities," Patten writes in a note to clients. However, "the price paid (1.8x Whitney's 2010 tangible book value estimate) and the implied assumptions related to management's EPS and internal rate of return calculations (~18%) appear overly optimistic."

Additionally, the credit marks of 6% (which excludes Whitney's' loan sale and loan reclassifications) is likely to leave concern among investors with regards to management's ability to achieve those in the stated time frame," Patten writes.

Compared to

Bank of Montreal's

(BMO) - Get Report

purchase agreement for

Marshall & Ilsley

( MI), announced last week, M&I's credit mark was 21%, notes Patten.

"Our view is that Whitney sold because it was in a competitive situation with buyer(s) and that adequate credit marks had not been taken in the portfolio and would become an issue in 2011," Patten writes.

Dan Freed contributed to this article.

-- Written by Laurie Kulikowski in New York.

To contact the writer of this article, click here:

Laurie Kulikowski

.

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