Tuesday, May 17, 2022

Emclaire had two offers before striking deal with Farmers

Farmers National Banc Corp. in Canfield, Ohio, was one of two banks to make an offer for Emclaire Financial in Emlenton, Pa. 

The $4.1 billion-asset Farmers agreed in late March to buy the $1.1 billion-asset Emclaire for $105 million. The move will provide Farmers with its first branches in Pittsburgh. 

Farmers easily cemented its position when its initial bid topped that of the other suitor by 20%, according to a regulatory filing tied to the pending acquisition. 

Farmers was already familiar with Emclaire when the latter decided to seek a buyer. Keven Helmick, the company’s president and CEO, had held informal meetings with William Marsh, Emclaire’s chairman, president and CEO, beginning in June 2021.

Emclaire’s board decided to try and sell the company after a meeting in late October, given a myriad of industry challenges. 

The board wanted to find a buyer that could pay a “more fulsome merger consideration” compared to other potential acquirors. The board also considered potential bidders’ acquisition record; their products, services and revenue sources; potential for stock price appreciation; stock liquidity; and opportunities for Emclaire employees. 

Emclaire’s investment bank contacted four potential bidders, including Farmers. Each signed non-disclosure agreements, receiving information on Emclaire’s operations and financial performance on Nov. 12. 

Only Farmers and another unnamed bank submitted bids. Farmers proposed a deal with 70% stock that valued Emclaire at $111.6 million. The other bank offered an even split of cash and stock valued at $93.1 million. 

The Emclaire board decided on Dec. 15 to only negotiate with Farmers. Less than a week later, Farmer improved its offer with a range of $111.6 million to $114.3 million. 

Farmers sent the initial draft of the merger agreement to Emclaire on Feb. 24. The final value fell some because of changes in overall market conditions and a decrease in the price of Farmers stock. 

Farmers’ board unanimously approved the merger on March 22. Emclaire’s directors unanimously backed the deal the next day. It was announced on March 24. 

The acquisition, which is expected to close in the second half of this year, priced Emclaire at 144.7% of its tangible book value. 

The deal is expected to be 10% accretive to Farmers' earnings per share. It should take about three years for Farmers to earn back any dilution to its tangible book value. 

Farmers plans to cut about 34% of Emclaire's annual noninterest expenses. The company expects to incur $13.2 million of merger-related expenses. 

Marsh, who will join Farmers as Pennsylvania market president, will receive a $275,000 base salary, according to the regulatory filing. He will also receive about $1.8 million to cancel his existing employment and change-in-control agreements.

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