Umpqua acquires Sterling Financial for $2bn

November 2013 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

Umpqua Holdings Corporation has announced that it will merge with Sterling Financial Corporation in a deal worth approximately $2bn.

The deal has been approved by the boards of both companies and is expected to be completed in the first half of 2014, provided it wins regulatory and shareholder approval. Under the terms of the deal, holders of shares in Sterling will receive 1.671 shares of Umpqua stock and $2.18 in cash for each of their shares, the companies noted in a joint statement.

Once complete, the merger will create the largest community bank on the West Coast, doubling Umpqua’s overall size. The newly combined organisation will have approximately $22bn in assets, $15bn in loans and $16bn in deposits. The company will also have 5000 associates and nearly 400 locations across five states. Part of the deal will see Umpqua and Sterling establish and fund a $10m community foundation, in order to underscore its commitment to local communities.

Ray Davis, president and chief executive of Portland-based Umpqua Holdings, will continue to lead the newly combined company. Greg Seibly, president and chief executive of Sterling, will assume the role of co-president of Umpqua Bank.

In their joint statement announcing the merger, Mr Davis said “Together, Umpqua and Sterling will create something unique in the financial services industry, an organisation that offers the products and expertise of a large bank but delivers them with the personal service and commitment of a community bank. With our size, shared cultures and financial strength, our combined organisation will be uniquely positioned to deliver value for our associates, customers, communities and shareholders. We look forward to starting the process of bringing our companies together.”

Funds affiliated with private equity firms Thomas H. Lee Partners LP (THL) and Warburg Pincus had been the two largest shareholders in Sterling, each owning approximately 20.8 percent of the company’s outstanding common stock. In order to facilitate the merger the two firms agreed to vote in favour of the deal. According to the statement announcing the sale, the two firms have the right to designate a representative to serve on the board of directors of the combined company following closing. David Coulter, Warburg Pincus’ vice chairman, stated “We have been very pleased with what Sterling has achieved since we made our investment in 2010, and are delighted with the decision to combine with Umpqua. Umpqua has a long record of achievement and creating shareholder value, and together with Sterling will create what we believe will be the leading community bank in the West.”

The sale announcement notes that the transaction is intended to qualify as a tax-free reorganisation for US federal income tax purposes. Accordingly, holders of Sterling’s stock are not expected to see any taxable gains or losses in connection with the share exchange.

Upon completion of the merger, existing shareholders of Umpqua are expected to own approximately 51 percent of all outstanding shares of the combined company. Sterling’s shareholders are expected to own the remaining 49 percent.

Sterling endured a tough time during the financial crisis, the bank being saddled with enormous bad loans and real estate debts. Accordingly, it had to rely on a near $300m bailout from the federal Troubled Asset Relief Program (TARP). In 2010 the bank began to repay some of the TARP money, eventually returning about $120m to the treasury. The company also brought new management on board when Warburg invested $139m in May 2010 − a month previously THL had injected $134.7m into the bank. THL managing director Josh Bresler said “The great potential that initially attracted us to making a significant investment in Sterling three years ago has been realised through the successful efforts of Greg Seibly and the entire Sterling team, and the merger with Umpqua is the logical next step for Sterling.”

Richard Summerfield