© Reuters. FILE PHOTO: A general view of Pacific Western Bank in Huntington Beach, California, U.S., March 22, 2023. REUTERS/Mike Blake/
By Niket Nishant and Manya Saini
(Reuters) -PacWest Bancorp’s shares jumped nearly 29% on Wednesday, as investors cheered Banc of California (NYSE:)’s $1.1 billion deal for the lender that has been under pressure since the banking crisis earlier this year.
Shares of Banc of California, smaller and younger compared to 24-year old PacWest, also rose about 3.4% to $15.11. The lender has agreed to pay 0.6569 share for each PacWest share, the companies said on Tuesday.
PacWest stock was trading at $9.90, above the offer price of $9.60 per share, according to calculations based on Banc of California’s closing price on Tuesday.
“We believe the sale of PacWest makes sense for shareholders given the numerous struggles the bank has faced since the March banking panic,” Raymond James analyst David Long said.
Optimism around the deal helped the KBW Regional Banking Index surge 2.9%, hitting its highest since March 14.
Shares of Western Alliance (NYSE:) also jumped 9%, touching levels not seen in over four and a half months.
The acquisition also has “strategic merits” for Banc of California, Long added.
“The deal marks a structural transformation for BANC and accelerates its evolution, with a much improved profitability profile exiting 2024.”
But Wedbush analyst David Chiaverini warned of a potentially tepid response from some PacWest shareholders.
“We question whether or not longer-term PACW shareholders will view this as a strong enough deal price for shareholder approval… We wouldn’t be surprised if there were some dissent among a minority of shareholders and possibly open the door to the potential emergence of a rival third-party bid.”
Earlier this year, after three lenders collapsed, the regional banking industry was engulfed in the worst turmoil since the 2008 financial crisis, which also put PacWest under pressure.
It signed a few asset sale agreements to pacify jittery investors and reassure depositors, including the sale of a $3.54 billion lender finance portfolio to asset manager Ares Management (NYSE:), which analysts had said would allay all concerns about the health of its balance sheet.
But global research firm Third Bridge’s analyst Omar Fahmy said “PacWest just could not recover from its wounds quickly enough.”
“Despite the sale announcement, our experts largely believe that the ‘banking panic’ we saw around U.S. regional banks earlier this year has subsided now we have seen reasonably positive earnings from PNC and Western Alliance,” Fahmy added.
Private equity firms Warburg Pincus and Centerbridge Partners have agreed to invest $400 million in Banc of California’s buyout deal.
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