Blackhawk Bancorp in Beloit, Wis., attempted to sell itself to another bank before it began negotiating with First Mid Bancshares in Mattoon, Ill.
The $6.7 billion-asset First Mid agreed in March to buy the $1.3 billion-asset Blackhawk for $90.3 million.
First Mid was one of two banks that Blackhawk’s investment bank contacted last August about submitting bids, according to a regulatory filing tied to the pending merger. First Mid’s proposal, submitted on Sept. 8, valued Blackhawk at $106 million.
The other bidder proposed a deal that valued Blackhawk at $138 million. Blackhawk’s board decided to have more in-depth discussions with the unnamed bank.
After conducting more due diligence, the unnamed bank on Nov. 16 revised its letter of intent to include “less favorable” terms, including a 17% reduction in the deal value.
“This offer also remained subject to further price adjustments based on merger-related expenses and a closing accumulated other comprehensive income threshold outlined in the letter of intent,” the filing said.
Blackhawk’s board determined that there was “material execution risk” tied to the proposal, including the risk that the unnamed bank would continue to revise its offer in a manner that would make it less attractive. The board decided to end negotiations.
Executives from First Mid and Blackhawk met on Dec. 7 to restart conversations. Two weeks later, First Mid proposed a deal that valued Blackhawk at $101 million to $106 million. Blackhawk requested, and received, a change allowing it to have a board seat.
The banks agreed to a letter of intent on Dec. 28 that included a 60-day exclusivity period. The first draft of the merger agreement was sent to Blackhawk on Feb. 17.
Blackhawk’s board unanimously approved the deal at a March 15 meeting. The merger agreement was signed on March 20 and announced the next day.
The deal, which is expected to close in the second half of this year, priced Blackhawk at 138.1% of its tangible book value.
The transaction is expected to be about 22% accretive to First Mid’s 2024 earnings per share, excluding merger-related expenses. It should take about two years to earn back an estimated 7.7% dilution to First Mid’s tangible book value.
First Mid expects to cut about 31% of Blackhawk’s annual noninterest expenses.
“We have been talking to [Blackhawk] for a number of years about a possible combination of our organizations,” Joe Dively, First Mid’s chairman and CEO, said in the press release announcing the deal.
“While there is volatility in the equity markets for banks today, the discussions which led to today’s announcement started a long time ago,” he added. “We have partnered with Blackhawk on many projects over the last several years and could not be more confident in the cultural and strategic alignment.”
Blackhawk said in the filing that it is considering appointing Todd James, its chairman, president and CEO, to fill the board seat at First Mid.