Olympic revisited Heritage offer after unnamed bank sought price cut
Olympic Bancorp in Port Orchard, Wash., returned to the negotiating table with Heritage Financial in Olympia, Wash., after a rival bidder moved to cut its offer, giving new life to a deal that was ultimately priced at $176.6 million.
The $7.1 billion-asset Heritage agreed in September to buy the $1.7 billion-asset parent of Kitsap Bank for $176.6 million in a deal expected to close in the first quarter. A Nov. 14 regulatory filing offers a detailed look at how the deal came together — and how it almost went in a different direction.
Olympic’s board began exploring strategic options in mid-March, with its investment bank contacting six potential buyers. Four signed nondisclosure agreements, including Heritage, which received confidential data on March 20. Heritage made its first move in May, proposing an all-stock deal with a fixed exchange ratio of 46.5 shares, valuing Olympic at roughly $175 million at the time.
By early May, Olympic had a second suitor. An unnamed bank surfaced with a richer all-stock proposal worth about $181 million, prompting Olympic’s board to shift its focus. The other bank sweetened its offer slightly and locked in a 65-day exclusivity period, during which it completed due diligence. The review uncovered valuation issues tied to certain Olympic assets and higher-than-expected transaction costs, including fees tied to an early contract termination. As a result, the bank sought to cut its exchange ratio by roughly 9%.
Olympic pushed back. With exclusivity running out on July 13, the board refused the reduced pricing and tried to salvage terms closer to the original valuation. But by July 17, the gap remained unresolved. The revised proposal was valued at about $182 million but still carried the risk of further downward adjustments until due diligence issues were settled.
Olympic ended talks and reopened discussions with Heritage.
By that point, Heritage’s original exchange ratio had gained value due to stock appreciation, rising to roughly $186 million. After confirming that Heritage remained interested — and after new diligence talks — Heritage submitted a refreshed proposal on July 23 that kept the original exchange ratio. Olympic accepted the next day, triggering a 60-day exclusivity window.
Heritage’s own due diligence ultimately nudged pricing slightly lower. Due diligence unearthed issues that made the transaction less favorable than what had been expected. Talks settled on a slightly lower exchange ratio; the final merger agreement was signed on Sept. 25.
The deal should be 18% accretive to Heritage’s earnings per share, taking into account cost savings.
Kitsap “is one of the longest tenured banks in Washington state, and we have deep respect for the banking institution they have built over the last 117 years,” Bryan McDonald, Heritage’s president and CEO, said in a press release announcing the deal. “Their relationship banking strategy has created an exceptionally high-quality, low-cost core deposit franchise.”