First Horizon Now Well-Placed For The Longer Term

Nov. 21, 2019 9:12 AM ETFirst Horizon Corporation (FHN), IBKCTFC, STI4 Comments
Stephen Simpson profile picture
Stephen Simpson


  • First Horizon's deal for IBERIABANK is strategically sound and should provide multiple benefits including enhanced geographic diversification, market growth, improved deposit mix, and operating scale.
  • With a relatively modest opex synergy target and little branch overlap, integration risk should be lower than for other mergers of equals in the banking sector.
  • First Horizon is significantly boosting its scale but also making a deal that has strong strategic rationale outside of scale.
  • First Horizon looks undervalued below $20.

I’ve written before that First Horizon (NYSE:FHN) has some under-appreciated counter-cyclical drivers that should help it navigate a likely-to-be tough 2020 better than its peers, but First Horizon management has since taken a major step toward shoring up its long-term future. Not only does the merger of equals with IBERIABANK (NASDAQ:IBKC) (“Iberia”) look attractive on its own merits, but it should give First Horizon much-needed scale and an even more attractive long-term operating footprint. I liked First Horizon before and the Iberia deal makes the outlook even better in my view. While mergers of equals are riskier from an integration perspective, I think First Horizon is going about this the right way and the long-term potential makes the risks worth taking. I’m not really big on “top picks”, but I definitely think First Horizon is a name to consider below the high teens.

The Deal

About two weeks ago, First Horizon and Iberia announced a merger of equals that will see Iberia merge into First Horizon. Iberia shareholders will get just under 4.6 shares of First Horizon for each IBKC share, with First Horizon shareholders owning 56% of the combined company. Assuming the deal closes as expected in 2020 (and I see little risk of any regulatory obstacles), First Horizon’s CEO will serve as the CEO for the newly-combined banks, with Iberia’s CEO becoming the executive chairman.

At the time of the announcement this was effectively a zero-premium deal, similar to the completed Chemical FinancialTCF Financial (TCF) transaction. First Horizon will see about 5% initial tangible book value dilution, but the earnback is only a bit over two years and management expects mid-teens EPS accretion. The opex savings assumptions look modest at around of 25% of Iberia’s base expenses, and I’d note that there’s not much branch overlap – only about 10% of branches

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Disclosure: I am/we are long BBT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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