This will be paid entirely in stock.
This raises the specter of shareholder dilution.
Peoples Bancorp (NASDAQ: PEBO) is expanding through an acquisition, and the company's investors weren't happy about it. They expressed their displeasure by trading out of the regional bank's shares on Wednesday, and the stock closed that trading session down by almost 6%.
Before market open on Wednesday, Ohio-based Peoples and Capital Bancorp announced they had agreed to combine their businesses. Peoples will acquire its peer in an all-stock deal under which Capital investors are to receive 1.11 Peoples shares for each Capital share they own. The transaction is valued at just over $728 million.
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The two companies said that the resulting entity will have around $14 billion in total assets and $10 billion in outstanding loans, and $11 billion in customer deposits. In terms of footprint, the combined company will boast more than 150 brick-and-mortar banks located in eight states, plus the District of Columbia.
Peoples said that the acquisition should be immediately accretive to its 2027 earnings before one-time costs. The deal is expected to close in the first half of that year and is subject to approval from both Peoples and Capital shareholders, as well as the relevant regulatory authorities.
Capital has just under 16.3 million shares outstanding, so at that 1.11-to-1 ratio, Peoples will issue more than 18 million new shares of its common stock to fund the acquisition. This is more than 50% of its current share count, and the looming dilution was a key reason investors reacted negatively to the news.
Peoples is on the hook, then, to prove that this acquisition can be transformational. That feels like a tall order for a not-large regional bank, so I'd be cautious about its stock now.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.