FBCP - Founders Bancorp

[writser]

After FCBS another microcap bank idea. Heartland Financial (HTLF) agreed to take over Founders Bancorp (FBCP) in a cash and stock deal worth ~$30m. Since the great Donald Trump has been elected the acquirer is up quite a bit but FBCP is lagging behind.

 

Merger consideration: 70% in HTLF stock, 30% cash in a transaction valued at $21.87 per share. The information about this deal is sparse but at the announcement of the deal HTLF was trading around $37.50, now around $43, so up ~15%. Which means that the deal consideration should be up 70% * 15% = 10% to around ~$24. Now I haven't seen a final proxy statement yet so they might change the stock exchange ratio but the website of Heartland seems to confirm my idea as it tells us 545k shares will be issued. This is a very small deal for Heartland (who have succesfully completed lots of small takeovers). Deal makes sense for both parties and is expected to close in Q1 2017.

 

Current spread: around 11% which is in my opinion way, way too high. Possible reasons: lack of final documentation about deal, stock is very hard to buy (not possible with IB, TDameritrade). I managed to buy a couple of shares with another broker.

[writser]

My initial analysis missed a crucial fact: in previous HTLF takeovers the exchange ratio was adjusted to match the VWAP of HTLF stock just before the deal closes. Assuming this happens too with this deal that would invalidate my whole thesis. The idea is still interesting but for a very different reason than I initially thought. Here is a much better analysis: link.