Cullen/Frost's Acquisition Deal Approved - Analyst Blog

Cullen/Frost Bankers, Inc.'s CFR deal to acquire Odessa, TX-based WNB Bancshares Inc. was recently approved by the Federal Reserve. The transaction is expected to close by the end of this month.

Following the completion, all WNB Bancshares branches located in Midland and Odessa would be merged into Frost financial centers on Jun 20, 2014. Further, the San Antonio based branch would shutter on the same day.

Earlier in Aug 2013, Cullen/Frost had signed a definitive merger agreement with WNB Bancshares under which the latter was to merge into Cullen/Frost. As per the agreement, the cash and stock deal was valued at $220 million.

Cullen/Frost will issue 2 million shares, and fund the rest of the deal with cash. The 2 million shares will be equal to the volume-weighted average price of the company's common shares during the 10 trading days prior to the deal's completion.

Further, the purchase price of $220 million can be revised upwards or downwards, depending on WNB Bancshares' targeted book equity value of $87 million during completion of the deal. Moreover, the transaction is expected to contribute about 4% to Cullen/Frost's 2014 earnings per share excluding the restructuring charges.

Cullen/Frost's first-quarter 2014 earnings missed the Zacks Consensus Estimate. Though the top line improved, results were adversely impacted by high operating expenses. Notably, the aforementioned deal resulted in $1.1 million acquisition-related expenditure which inflated other expenses during the quarter.

Nevertheless, the merger deal will enable Cullen/Frost to capitalize on the booming Midland and Odessa markets of The Permian Basin, thereby further strengthening its Texas franchise. On the other hand, the venture seems beneficial to the customers of WNB Bancshares too as it facilitates access to Cullen/Frost's wide range of financial products and services.

Cullen/Frost currently carries a Zacks Rank #3 (Hold). Better-ranked banks worth considering include BofI Holding, Inc. BOFI, Central Pacific Financial Corp. CPF and CVB Financial Corp. CVBF. All these stocks sport a Zacks Rank #1 (Strong Buy).