Lone Star Bank in Houston considered offers from two other suitors – a bank and an investment group – before deciding to have serious discussions with First Guaranty Bancshares in Hammond, La.
The $3.2 billion-asset First Guaranty agreed in January to buy the $160.8 million-asset Lone Star.
Lone Star’s board began to evaluate the rationale for selling in late 2021, hiring an investment bank and legal counsel in early February 2022, according to a regulatory filing associated with the pending sale to First Guaranty.
The investment bank contacted 30 potential buyers without disclosing that Lone Star was the interested seller. Seventeen parties, including First Guaranty, signed nondisclosure agreements, and 10 were given access to preliminary diligence materials. Four suitors provided verbal or written offers.
Lone Star’s board decided on April 1, 2022, to enter into an indication of interest with an unnamed bank holding company that had proposed paying $28 million. First Guaranty submitted a non-binding letter of intent on April 6, though the details were not disclosed.
Following added due diligence, the unnamed bank informed Lone Star that it could not continue at the price set forth in its original offer. The indication of interest was terminated on April 25.
Lone Star’s investment bank contacted First Guaranty and an investment group on May 6 – both were still interested in discussing a deal. The investment group on May 19 submitted a non-binding letter of intent for an all-cash offer.
The Lone Star board determined that the proposals from First Guaranty and the investment group “were insufficient to move forward,” the filing said. The parties were asked to submit their best and final offers.
The investment group submitted a revised non-binding letter of intent in early June, while First Guaranty sent a revised offer on June 13. No details were disclosed in the filing.
Lone Star’s board determined at a June 22 meeting that First Guaranty had the superior offer due to a higher consideration amount and a higher likelihood of closing. The board determined that a transaction with First Guaranty at was more likely to maximize shareholder value.
First Guaranty on July 26 provided Lone Star a revised non-binding letter of intent that with a deal price that valued Lone Star at 150% of its net tangible book. Lone Star’s board approved the letter of intent that day.
First Guaranty send the initial draft of the merger agreement to Lone Star on Oct. 4. Three weeks later, First Guaranty amended the non-binding letter of intent, agreeing to reimburse Lone Star for certain pre-closing merger-related costs.
The proposed merger agreement was revised several times in late 2022 and early 2023. Both boards approved the merger at separate Jan. 6 meetings and the deal was announced on Jan. 9.
“First Guaranty Bank’s philosophy and goal is to have a strong presence in the communities we serve and to be a strong contributor to the communities,” Alton Lewis, the company’s vice chairman, president and CEO, said in a press release. “We look forward to spreading this philosophy in the Houston market.”
Dennis Harrington, Lone Star’s president and CEO, will receive a lump sum of about $542,000 at closing if he accepts a job at First Guaranty. That payout increases to $567,000 if he doesn’t accept employment. The consideration is in exchange for waiving and terminating his change-of-control agreement with Lone Star.