The agreement to buy Sterling follows PNC's June 8 agreement to pay approximately $403 million for the 33-branch Hamilton, NJ-based Yardville National Bancorp. Earlier this year, PNC closed on the acquisition of Baltimore-based Mercantile Bankshares Corp. for $2.1 billion in cash and shares of PNC stock valued at approximately $3.9 billion. That added 240 branches for PNC.
The Yardville buy is expected to close this fourth quarter, followed by the close of the Sterling deal in the first quarter of 2008. As with the Mercantile acquisition, Yardville's and Sterling's operations will be integrated with PNC and all branches will carry the PNC flag. With the close of both deals, that flag will adorn approximately 1,177 branches.
"This acquisition provides a meaningful entry into several of the fastest growing Pennsylvania counties and joins our Pennsylvania markets of Harrisburg and Philadelphia to our new Greater Baltimore region," says Joseph Guyaux, PNC president, in a statement. The deal "meets PNC's disciplined guidelines for the deployment of capital," he adds saying he expects it to generate a 15% annual rate of return.
Sterling ran into problems this year when it disclosed that an investigation had uncovered collusion by a group of employees in its Equipment Finance LLC unit, which resulted in a charge of approximately $165 million. In a statement, PNC said its due diligence had concluded that the accounting issues were confined to that unit.
Glenn Walz, Sterling's chairman, says in a statement that the PNC "transaction demonstrates our commitment to enhance shareholder value following the impact of the irregularities found at EFI earlier this year." The PNC deal values shares of SLFI stock, which trades on the Nasdaq, at $19 a share. By mid-day, following announcement of the PNC agreement, SLFI shares spiked to $17.77 a share, up more than 68% for the day.
The Sterling and PNC boards of directors have approved the merger, which remains subject to regulatory approvals and the approval of Sterling shareholders. The actual value of the price paid to Sterling shareholders will depend on the average PNC stock price prior to the close. The agreement bases it on a PNC stock price of $73.87 a share, which occurred at the close of the NYSE on July 17. By mid-day on July 19, the day the agreement was announced, PNC shares slid to $70.73 a share, down nearly 3.4% for the day.
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