The trouble with striking a good bargain is that sometimes it's a little too good to go through. While North Carolina-based BB&T (NYSE:BBT) thought it had a deal to acquire most of the worthwhile assets of Florida's BankAtlantic (NYSE:BBX), disaffected investors have successfully persuaded a Delaware judge to block the deal. Whether this deal goes through or not, though, BB&T has plenty of other fish in the sea as this under-rated bank continues to recover and acquire valuable assets.
A Judge Says "No"
BB&T had structured its deal with BankAtlantic along pretty aggressive lines. While the 9% deposit premium that BB&T offered for about $3.3 billion in deposits (and $2.1 billion in good loans) was on par with similar deals, including a deal whereby PNC (NYSE:PNC) bought 19 branches and $350 million in deposits from BankAtlantic, this deal was basically going to hollow out BankAtlantic and leave it largely a holding company with some stressed/distressed assets.
Not surprisingly, holders of BankAtlantic trust preferred securities objected to this, as they were not included in the buyout. Put very simply, the TruPS holders argued that the good assets that BB&T wanted to buy were already underpinning those trust preferred securities, and this deal would leave little chance that BankAtlantic could make good on them.
The judge agreed and the deal, for now, is in trouble. The two banks could appeal or go back to the drawing board with the TruPS holders and figure out some way to restructure the deal. Odds are that BB&T will drive a hard bargain - this deal was a nice incremental add for them, but a demand for a much higher price may incentive the company to walk away entirely as it will push the expected internal rate of return below target levels.
Another Deal Goes Through
BB&T has always been a pretty acquisitive bank, and that has not changed. Many investors may not realize it, but BB&T is also a major player in insurance and getting larger. BB&T recently bought the life and P&C business of Crump Group for $570 million. While details were relatively sparse in the 10-K, assuming these business offer average profitability, BB&T paid the average going multiple for the assets - not bad considering that insurance companies are largely undervalued today.
Other Fish In The Sea
With write-offs declining, BB&T has emerged from its bunker, finished shoring up the balance sheet, and resumed its growth plans. To that end, management has been pretty clear that further deals are very much in mind.
BB&T is explicitly targeting deals in Maryland, Tennessee, Atlanta (Georgia), Florida, and Texas, and would ideally like to buy franchises with top-five positions in significant metro areas.
So who makes the cut of possible targets? In Atlanta, Synovus (NYSE:SNV) would be an obvious choice and United Community Banks (NASDAQ:UCBI) could also make a certain amount of sense. First Horizon (NYSE:FHN) could make sense in Tennessee, as could Home Federal.
There aren't so many obvious names in Maryland (at least not in terms of leading metro area market share), while a listing of potential targets in Texas and Florida could be an article all on its own. Suffice it to say, though, that BB&T is not lacking in suitable or interesting targets across a range of attractive markets.
The Bottom Line
BB&T shares have done pretty well of late and are no longer the easy recommendation that they once were. Said differently, it's hard to ignore names like PNC, Wells Fargo (NYSE:WFC), or US Bancorp (NYSE:USB) on a relative value basis.
That said, BB&T is still undervalued and a good holding for investors looking for a well-run bank led by a management team that seems to embody "aggressive conservatism" and a real eye for long-term shareholder value.
Disclosure: I am long BBT.