First Horizon Completes Merger Consideration Allocations

Last week, First Horizon National Corporation (NYSE:FHN) , headquartered at Tennessee, announced the final merger terms of the acquisition of Charlotte, N.C.-based Capital Bank Financial Corp. First Horizon acquired Capital Bank for a total value of $2.2 billion, forming the fourth largest regional bank in the Southeast, effective Nov 30, 2017.

Final Terms of the Deal

Per the deal, each common shareholder of Capital Bank has been converted into the right to receive either 2.1732 of First Horizon shares or $40.573 in cash for every Capital Bank share held, subject to certain conditions. The deal has been agreed upon 80% stock and 20% cash.

Following the allocation provisions, around 10.1 million shares of Capital Bank were converted into the right to receive cash amount, while the remaining shares were converted into the right to receive shares of First Horizon common stock. Notably, 42% shareholders of Capital Bank had elected for cash, while the remaining shareholders opted for share conversion or no election.

Further, shareholders who opted for cash will receive 46.12% of the merger consideration in cash and the remaining 53.88% in First Horizon common stock. Additionally, shareholders who opted for stock or made no election will receive the merger consideration only in the form of First Horizon common stock, along with cash for fractional shares, based on the closing price of $18.67 per share of First Horizon.

After Effects of the Deal

First Horizon, with $30 billion in assets, and Capital Bank, with $10 billion in assets, created the combined entity with $40 billion in assets, $32 billion in deposits and $27 billion in loans. The high potential market in North Carolina, along with the strong relationships that Capital Bank has built in the area, seems to have prompted First Horizon to opt for this acquisition. The deal certainly fortifies First Horizon’s footprint in the Southeast, with about 350 branches in Tennessee, North Carolina, South Carolina, Florida, Mississippi, Georgia, Texas and Virginia.

According to the terms of the deal, First Horizon will maintain its First Tennessee bank brand in Tennessee, while the Capital Bank name will be used for branches outside Tennessee.

Barclays (LON:BARC) Capital Inc., a unit of Barclays PLC (NYSE:BCS) and Morgan Stanley & Co. LLC, a unit of Morgan Stanley (NYSE:MS) acted as financial advisors for First Horizon.

Bottom Line

We believe the latest acquisition is a befitting one which will support the future prospects of First Horizon, which, amid the financial crisis, was adversely affected as a result of its exposure to national mortgage and construction lending. The company decided to exit these business lines and focus on growing the core Tennessee banking franchise.

The company’s repositioning and restructuring efforts, which are still underway, help it reallocate capital into core markets. Also, its focus on cost control and efforts to boost long-term profitability are anticipated to augur well.

Such moves have caused investors to become optimistic about First Horizon's growth opportunities. Notably, the company's share price rose nearly 9.9% over the last six months as compared with 3.9% growth recorded by the industry.

Currently, First Horizon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A better-ranked company is Federated Investors Inc. (NYSE:FII) which has been witnessing upward estimate revisions for the last 30 days. The company’s share price has been up around 26.5% in six months’ time. It carries a Zacks Rank of 2 (Buy).

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