DEFM14A: HomeStreet and FirstSun Capital Bancorp Announce Amended Merger Agreement

Sentiment:

Merger Announcement 16 May 2024 4:06 PM

HomeStreet shareholders are being asked to vote on a proposed merger with FirstSun Capital Bancorp, aiming to create a premier bank in the Southwest and West Coast with approximately $17 billion in assets.

Capital raiseFirstSun sold approximately 2.46 million shares of FirstSun common stock to Wellington for $32.50 per share and an aggregate purchase price of $80 million.Investors will invest an aggregate of $140 million in exchange for the sale and issuance, at a purchase price of $32.50 per share, of approximately 4.31 million shares of FirstSun common stock.FirstSun may offer an additional 461,539 shares of FirstSun common stock, at a purchase price of $32.50 per share, for an additional investment of $15 million from (i) Castle Creek, who has a 30-day window from the execution of the First Amendment to the Acquisition Finance Securities Purchase Agreement to elect to purchase such shares, or (ii) any other investor selected by FirstSun if Castle Creek does not elect to purchase such shares.

Worse than expectedThe exchange ratio was reduced from 0.4345 to 0.3867 shares of FirstSun common stock for each HomeStreet share.The implied value of the merger consideration payable for each share of HomeStreet common stock on April 29, 2024 and May 10, 2024 is $13.54 and $13.15, respectively.

Summary

HomeStreet and FirstSun Capital Bancorp have entered into an amended merger agreement.
FirstSun will acquire HomeStreet, with HomeStreet becoming a wholly-owned subsidiary of FirstSun.
The transaction aims to create a premier bank in the Southwest and West Coast with approximately $17 billion in assets.
HomeStreet shareholders will receive 0.3867 shares of FirstSun common stock for each HomeStreet share they own.
FirstSun will uplist its common stock to The Nasdaq Stock Market (Nasdaq).
FirstSun has secured investment agreements to raise additional capital in connection with the merger.
FirstSun sold approximately 2.46 million shares of FirstSun common stock to Wellington for $32.50 per share and an aggregate purchase price of $80 million.
Investors will invest an aggregate of $140 million in exchange for the sale and issuance, at a purchase price of $32.50 per share, of approximately 4.31 million shares of FirstSun common stock.
The mergers are intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.
FirstSun stockholders are expected to hold approximately 81% of the issued and outstanding shares of FirstSun common stock, and HomeStreet shareholders will hold approximately 19%.
HomeStreet will dispose of approximately $300 million of its commercial real estate loans.
FirstSun will issue at least $48.5 million in subordinated debt that qualifies as Tier 2 capital.
HomeStreet shareholders will vote on the merger agreement on June 18, 2024.
The HomeStreet board of directors unanimously recommends that HomeStreet shareholders vote FOR the merger agreement.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the merger aims to create a larger, more competitive bank, there are risks and uncertainties associated with the transaction, including potential delays, regulatory hurdles, and integration challenges. The reduction in the exchange ratio is a negative factor, but the board's recommendation to approve the merger suggests a belief in its overall value.

Positives

The merger will create a larger, more competitive bank in the Southwest and West Coast.
HomeStreet shareholders will receive shares in a company listed on Nasdaq.
The merger is expected to provide opportunities for cost savings and synergies.
FirstSun has secured commitments for additional capital to support the merger.
The HomeStreet board of directors believes the merger is in the best interests of HomeStreet and its shareholders.

Negatives

HomeStreet shareholders will have a reduced ownership percentage in the combined company.
The value of the merger consideration will fluctuate with the market price of FirstSun common stock.
The integration of the two companies may be more difficult, costly, or time-consuming than expected.
The combined company may be unable to retain HomeStreet personnel successfully after the mergers are completed.

Risks

The failure to obtain necessary regulatory approvals could prevent the merger from being completed.
The failure of HomeStreet shareholders to approve the merger agreement could prevent the merger from being completed.
The inability to obtain alternative or additional capital in the event it becomes necessary to complete an equity financing, which is a condition to the consummation of the mergers.
The failure to dispose or sell of approximately $300 million (based on principal balance) of certain of HomeStreets commercial real estate loans, which disposition or loan sales is contemplated to be consummated upon, or as soon as reasonably practicable, after the closing of the mergers.
The failure to issue an aggregate principal amount of at least $48.5 million in subordinated FirstSun debt that qualifies as Tier 2 capital.
The combined company may be unable to retain HomeStreet personnel successfully after the mergers are completed.
Shareholder litigation could prevent or delay the completion of the mergers or otherwise negatively impact the business and operations of FirstSun and HomeStreet.

Future Outlook

FirstSun and HomeStreet expect to complete the mergers in late 2024, subject to shareholder and regulatory approvals.

Management Comments

The HomeStreet board of directors has unanimously determined that the merger agreement, the mergers, and the transactions contemplated by the merger agreement are advisable and in the best interests of HomeStreet and its shareholders.

Industry Context

The banking industry is experiencing consolidation, with larger institutions seeking to expand their geographic footprint and service offerings. This merger aligns with that trend.

Comparison to Industry Standards

Comparable companies in the banking industry include First Foundation Inc., First Financial Bankshares, Inc., Veritex Holdings, Inc., Stellar Bancorp, Inc., National Bank Holdings Corporation, TriCo Bancshares, Capitol Federal Financial, Inc., LendingClub Corporation, Southside Bancshares, Inc., Central Pacific Financial Corp., CrossFirst Bankshares, Inc., Heritage Financial Corporation, Westamerica Bancorporation, Triumph Financial, Inc., Heritage Commerce Corp and Equity Bancshares, Inc..
The transaction value per share to tangible book value per share of the acquired company is 49%/111% compared to a global benchmark of 177% at the 75th percentile, 151% average and 118% at the 25th percentile.
The price per common share to LTM estimated EPS of the acquired company is NM compared to a global benchmark of 14.2x at the 75th percentile, 13.3x average and 10.0x at the 25th percentile.
The price per common share to estimated EPS of the acquired company for the first full year after the announcement of the respective transaction is 20.9% compared to a global benchmark of 12.2x at the 75th percentile, 10.9x average and 9.5x at the 25th percentile.
The tangible equity premium to core deposits is (5.0%) compared to a global benchmark of 8.2% at the 75th percentile, 5.9% average and 3.4% at the 25th percentile.
The one-day market premium is 10.2% compared to a global benchmark of 27.5% at the 75th percentile, 20.7% average and 7.4% at the 25th percentile.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Executive Vice Chairman of FirstSun and Sunflower Bank	NA	Mark K. Mason	Effective Time of the Mergers	Part of the merger agreement.
Director of FirstSun	NA	Mark K. Mason	Effective Time of the Mergers	Part of the merger agreement.
Director of FirstSun	NA	Two other legacy directors of HomeStreet	Effective Time of the Mergers	Part of the merger agreement.
Director of Sunflower Bank	NA	Mark K. Mason	Effective Time of the Bank Merger	Part of the merger agreement.
Director of Sunflower Bank	NA	Two other legacy directors of HomeStreet	Effective Time of the Bank Merger	Part of the merger agreement.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Termination of Stockholders Agreement	FirstSun's Stockholders Agreement will be terminated at the effective time of the second step merger.	Effective Time of the Second Step Merger	This will change the governance structure of FirstSun.
Board Representative Letter Agreements	FirstSun will enter into board representative letter agreements with certain stockholders to retain the right to appoint a director to the combined company board of directors.	Effective upon closing of the mergers and the termination of the Stockholders Agreement	This will ensure continued representation of key stockholders on the board.
Board Observer Right	Castle Creek will initially appoint an observer to the board of directors of FirstSun, and, upon Castle Creeks request after the earlier of six months or a private equity investor losing a board nomination right pursuant to its existing agreements with FirstSun, Castle Creek will receive the right, so long as Castle Creek maintains beneficial ownership of at least 40% of the shares of FirstSun common stock acquired pursuant to the Acquisition Finance Securities Purchase Agreement, to nominate an individual for election or appointment to the board of directors of FirstSun.	Effective upon closing of the mergers and the termination of the Stockholders Agreement	This will ensure continued representation of key stockholders on the board.

Legal Proceedings

Certain litigation is pending in connection with the mergers.

Stakeholder Impact

HomeStreet shareholders will receive FirstSun common stock and may experience changes in their rights as stockholders.
HomeStreet employees may experience changes in their compensation and benefits.
The merger may impact HomeStreet's relationships with customers, suppliers, and creditors.

Next Steps

HomeStreet shareholders will vote on the merger agreement on June 18, 2024.
FirstSun and HomeStreet must obtain necessary regulatory approvals.
FirstSun and HomeStreet must satisfy certain other closing conditions.

Key Dates

Date	Description
January 16, 2024	Original Agreement and Plan of Merger signed.
January 17, 2024	Closing of the Upfront Securities Purchase Agreement with Wellington.
April 30, 2024	Amendment No. 1 to the Agreement and Plan of Merger signed.
June 18, 2024	HomeStreet shareholder meeting to vote on the merger agreement.
Late 2024	Expected completion of the mergers.

Keywords

merger, FirstSun Capital Bancorp, HomeStreet, acquisition, shareholders, regulatory approvals, investment agreements, capital raise, banking, finance

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