Yuanxi Zhang
Long/short equity, value, special situations

First Southern Bancorp-CenterState Banks Merger Analysis: Complex Conditions To Close Fairly Compensated By Moderate Spread

Thesis

The merger of First Southern Bancorp (OTCQB:FSOF) and CenterState Banks (NASDAQ:CSFL) requires a number of conditions to be fulfilled before the deal consummates. We believe the current spread of 3.64% fairly compensates the level of uncertainty involved with the deal. While the downside is relatively low, the upside is not very attractive. Hence, we would recommend waiting for a better price.

The Merger

On January 29, CenterState Banks announced that it would acquire First Southern Bancorp at an aggregate valuation of $189.5 million. The aggregate valuation represents a 17.6% premium over First Southern's $161 million market cap in late December. The valuation also implies a 96.2% price-to-book ratio for FSOF, assuming full reversal of deferred...

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