How a small Ohio bank pulled in 10 buyout offers

Peoples-Sidney Financial in Sidney, Ohio garnered considerable interest from potential buyers before agreeing to be sold to Farmers & Merchants Bancorp in Archbold, Ohio. 

The $2.7 billion-asset F&M agreed in mid-June to buy the $133 million-asset Peoples-Sidney for $27 million. 

Peoples-Sidney received 10 nonbinding indications of interest before agreeing to talk with F&M, according to a regulatory filing tied to the pending merger. 

Peoples-Sidney hired an investment bank in January to help it find a buyer. The investment bank contacted 30 potential suitors on March 14. Of those, 25 signed a nondisclosure agreement, and 10 submitted offers on April 7. 

Peoples-Sidney’s board instructed its investment bank to invite four of the potential candidates, including F&M, to conduct “a more-detailed and comprehensive due diligence process.” F&M conducted its on-site due diligence on April 19-20. 

Each suitor submitted revised indications of interest on May 12. 

F&M’s offer consisted of 60% stock and valued Peoples-Sidney at $20.49 a share. Two of the other proposals had a value of $23 a share, while the fourth pitch was $20.50 a share – each of those were all-cash offers. 

Peoples-Sidney asked its investment bank to inquire if each offer was the final and best proposal. One suitor was asked to remove a clause requiring Peoples-Sidney to have a minimum equity level at closing, and F&M was asked if it would let Peoples-Sidney’s investors elect cash or stock. 

The minimum equity level was removed, and F&M gave Peoples-Sidney three options for consideration. One of the other candidates said it would be open to increasing its offer by $300,000.

The Peoples-Sidney board favored the F&M pitch with at least 65% stock because, at $24 a share, it was the highest bid. Conversations also focused on having F&M include a collar structure to protect against a decline in the stock exchange ratio. 

Peoples-Sidney notified the other banks on May 18 that it “was not interested in continuing conversations,” the filing said. It entered into an exclusivity agreement with F&M. 

The parties agreed to a collar where the exchange ratio would be fixed if F&M’s stock price was between $35.95 and $40.35 a share on the last trading day before signing the merger agreement. It would float if the stock price fell below $35.95 a share. 

Peoples-Sidney received the initial draft of the merger agreement on May 24. The board unanimously approved the merger on June 14. 

The deal, which was announced the next day and is expected to close by the fourth quarter, priced Peoples-Sidney at 175% of its tangible book value. 

The acquisition “creates immediate value for our shareholders, customers, and communities and I am excited to expand F&M’s community-oriented banking,” Lars Eller, F&M’s president and CEO, said in a press release announcing the deal.  

“This transaction is an excellent opportunity for Peoples to become part of a larger community banking organization that offers customers a wider range of financial services,” Eller added. 

F&M expects the deal to be 2.5% accretive to its 2023 earnings per share, excluding merger-related costs. It should take a little over a year for the company to earn back an estimated 2.1% dilution to its tangible book value.  

F&M expects to cut 26.7% of Peoples-Sidney's annual noninterest expenses and incur $3 million of merger-related charges.