PacWest Bancorp
stock has had a strange almost round trip following a report—then an announcement—that it would be bought out by
Banc of California.
When all is said and done, its shares are still lower on the deal.
The wild ride started when The Wall Street Journal reported at around 2:30 p.m. Tuesday that PacWest (ticker: PACW) would be taken over by Banc of California (BANC). The market assumed the worst, though it’s unclear what the worst would be, and PacWest stock tumbled 27%, while Banc of California gained 11%:
The news became official after the market close, and now PacWest is making back most of its losses, with the stock up 27%, while Banc of California has gained just 0.1%:
The two-day tally, at least through early trading on Wednesday: Banc of California has gained 11%, while PacWest has dropped 7.3%.
That seems to make sense. PacWest shareholders will get 0.6569 shares of Banc of California for each share they own. Do the math, and that comes out to $9.60, only slightly lower than where PacWest was trading.
So what’s behind the big down move that was then reversed? Chalk it up to the lack of detail in the initial reports. Hovde Group analyst Brett Rabatin notes that when a small bank buys a larger one, as is the case with Banc of California and PacWest, investors can assume that a capital raise would be in the offing. That was true—Warburg Pincus and Centerbridge Partners are investing $400 in equity of the combined companies—but the terms are far from onerous. The fact that it was Warburg and Centerbridge doing the investing also helped soothe the market’s nerves because they are two firms that are known for being smart and are likely to want to fix the companies and move on. “Obviously, they’d done an extreme amount of due diligence,” Rabatin says. “They’re going to try to get this fixed up pretty quickly.”
The deal might also be good news for the banking sector, writes UBS analyst Brody Preston. “We think the market is likely to view the PACW acquisition as a bit of a clearing event, as it takes the last bank of size that had been weakened since March off the chess board, which we view as healthy for the industry overall.”
Of course, things can change in a day, and with bond yields rising to near their highest levels of the year, bank stocks took it on the chin on Thursday. PacWest ended the day down 5.1%, while Banc of California fell 3.2%.
Write to Ben Levisohn at [email protected]
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