PNC Financial Services to Acquire BBVA in a $11.6 Billion Deal

PNC Financial Services to Acquire BBVA in a $11.6 Billion Deal
November 18, 2020

 

Diversified financial services company PNC Financial Services Group Inc (NYSE: PNC), the holding company of PNC Bank, is acquiring the US business of Spanish financial group BBVA in an all-cash deal worth $11.60 billion. It is the second-largest takeover deal in the US since the 2008 financial crisis and is expected to close sometime in mid-2021.

Both companies’ boards of directors have already endorsed the transaction. The stock of PNC closed almost flat at $126.89, up $0.60 or 0.48% from the prior close.

The acquisition price was calculated based on 134% of BBVA USA’s tangible book value, as per the balance sheet at the end of the September quarter, and mirrors a deposit premium of 3.7%. PNC anticipates spending $980 million in costs related to merger and integration, including roughly $250 million in the form of write-offs of capitalized goods.

BBVA USA Bancshares, the holding company of BBVA USA, is headquartered in Houston (TX) and manages assets worth $104 billion. The financial institution has 637 branches spread across Texas, California, Arizona, Alabama, Florida, Colorado, and New Mexico. Under the takeover deal, the Pittsburgh, Pennsylvania-based PNC Financial Services Group will commence with the merger by taking over BBVA USA Bancshares. At the same time, BBVA USA will be merged with PNC Bank. Ultimately, PNC will be the entity left in the deal.

Evercore, Bank of America, PNC Financial Institutions Advisory, and Citi acted as financial consultants to PNC; and Wachtell, Lipton, Rosen & Katz as legal advisors. J.P. Morgan Securities plc acted as financial consultants to BBVA; and Sullivan & Cromwell LLP their legal counsel.

Following the takeover, the merged entity will have a presence in 29 of the 30 largest markets in the US. The deal values the US business of BBVA at 19.7 times its FY 2019 earnings and 1.34 times its book value at the end of September 2020. The offered price is roughly 50% of BBVA’s prevailing market capitalization.

Carlos Torres Vila Group Executive Chairman of BBVA opined that the divestment was positive “for all sides” and improved the Spanish group’s “already strong financial position.”

Torres Vila explained the capabilities of the enterprise while disclosing the intention to boost shareholders’ value. “We will have ample flexibility to profitably deploy capital in our markets strengthening our long-term growth profile and supporting economies in the recovery phase, and to increase distributions to shareholders.”

Regarding the benefits of the acquisition, PNC Chairman, President and CEO William Demchak, said: “Our acquisition of BBVA USA will accelerate our growth trajectory and drive long-term shareholder value through a strategic deployment of the proceeds from the sale of our BlackRock investment.”  

PNC anticipates the deal to be roughly 21% accretive to FY 2022 earnings and considerably substitutes the net income gains from PNC’s stake (passive investment) in BlackRock that was sold off in May 2020. The acquisition deal is forecast to generate an internal rate of returns of over 19% for PNC.

The third-quarter balance sheet of BBVA USA indicates that PNC’s balance sheet, upon completion of the deal, will receive roughly $86 billion in deposits and $66 billion in outstanding loans. Furthermore, following the close, the forecast level for credit losses to overall loans will be 2.85% for the merged entity. This includes 3.85% of reserves for the loans taken from BBVA USA.

The merged entity is expected to attain cost savings of over $900 million or 35% of BBVA USA’s FY22 forecast yearly non-interest costs via improvements in operational and administrative efficiencies.

The acquisition news is expected to keep the stock of PNC bullish in the near-term.

The historical price chart indicates that the stock has bounced off the support at 113. The next resistance is anticipated only near 150. Additionally, the stock is trading above its 50-day moving average, while the MACD indicator has a positive reading. Therefore, we are anticipating the stock to rally further in the days to come.

pnc - technical analysis - 18th November 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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