Old National, First Midwest announce $2.5B merger

Old National Bancorp in Evansville, Ind., has agreed to buy First Midwest Bancorp in Chicago. 

The $23.7 billion-asset Old National said in a press release Tuesday that it will pay $2.5 billion in stock for the $21 billion-asset First Midwest. The deal, which is expected to close by early 2022, priced First Midwest at 165% of its tangible book value.

First Midwest shareholders will own about 44% of Old National’s stock. The company will have dual headquarters in Evansville and Chicago, $29.1 billion of loans and $34.5 billion of deposits. 

Jim Ryan, Old National’s chairman and CEO, will remain CEO. Michael Scudder, First Midwest’s chairman and CEO, will become Old National’s executive chairman. 

The 16-member board will have an even split of Old National and First Midwest directors. 

“First Midwest and Old National are two relationship-focused financial institutions that have rich histories, extremely compatible cultures and a shared commitment to helping our clients achieve financial success,” Scudder said in the release. 

“As a combined organization, we will be in an even stronger position to invest, grow and innovate in talent, capabilities and services that will enhance an already superior client experience and further set us apart as a market leader not only in Chicago but across the Midwest,” Scudder added.

“First Midwest’s leadership team and colleagues not only mirror the Old National mission, values and culture, they also offer exceptional consumer and commercial banking services,” Ryan said.

“We are confident that the powerful synergies, additional market coverage and financial strength this partnership creates will drive long-term shareholder value, and we are excited about combining the outstanding legacies of two strong, client- and community-focused organizations,” Ryan added.

The deal is expected to by 22% accretive to Old National’s 2022 earnings per share. It should take about three years for the company to earn back any dilution to its tangible book value.

Old National plans to cut about 11% of its annual noninterest expenses, or roughly $109 million. The company expects to incur $181 million of merger-related expenses.

"We have covered [each company] for a number of years and they both have been active buyers of smaller Midwestern banks," John Rodis, an analyst at Janney Montgomery Scott, wrote in a note to clients. 

"This transaction is bigger than we expected but is also a sign of the times in today's operating environment and the need for scale," Rodis added.

Keefe, Bruyette & Woods and Squire Patton Boggs advised Old National. J.P. Morgan Securities and Sullivan & Cromwell advised First Midwest.