Eastern Bankshares in Boston has agreed to buy Cambridge Bancorp in Cambridge, Mass., and sell its own insurance unit to Arthur J. Gallagher & Co.
The $22 billion-asset Eastern said in a press release that it will pay $528 million in stock for the $5.5 billion-asset Cambridge. The deal, which is expected to close in the fourth quarter, priced Cambridge at 114% of its tangible book value.
Eastern Insurance is being sold for $510 million.
Eastern said the combined transactions will be 20% accretive to its earnings per share. It will take less than three years for Eastern to earn back an estimated 7.5% dilution to its tangible book value.
Denis Sheahan, Cambridge’s chairman, president and CEO, will become Eastern’s CEO. Four Cambridge directors, including Sheahan, will join the company’s board.
Bob Rivers, Eastern’s chairman and CEO, will remain chairman. Quincy Miller, Eastern’s president, will serve as vice chairman, president and chief operating officer.
“As we set our sights on the future, the enhanced capabilities and financial strength created by this merger will allow us to further position Eastern as the region’s local financial partner of choice, delivering enhanced value for our customers and shareholders, greater support for our communities, and increased opportunities for our colleagues,” Rivers said in the release.
“After careful consideration of Eastern’s long-term goals, the [sale of the insurance business] is being made to recognize the valuation premium of Eastern Insurance, while allowing Eastern to focus on the growth and strategic initiatives of its core banking business, including the announced merger with Cambridge,” Rivers added.
Eastern plans to cut about 34% of Cambridge’s annual noninterest expenses, or roughly $37 million. The company expects to incur about $70 million of merger-related expenses.
“Stategically, Eastern is hoping to sell high on the insurance business, buy low on the Cambridge acquisition and achieve balance sheet flexibility,” Jake Civiello, an analyst at Janney Montgomery Scott, said in a research note.
“By the nature of the accounting rules and locking in the Cambridge assets’ fair-value marks, we believe Eastern can more aggressively pursue strategic asset sale options without negative impact to capital,” Civiello added.
J.P. Morgan Securities and Nutter McClennan & Fish advised Eastern on the Cambridge purchase. BofA Securities and Hogan Lovells US advised Cambridge.
Piper Sandler and Nutter McClennen & Fish advised Eastern on the sale of the insurance business.