Why Sterling Financial Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Sterling Financial (NASDAQ: STSA  ) climbed 10% today after fellow regional bank Umpqua Holdings (NASDAQ: UMPQ  ) agreed to acquire it for $2 billion.

So what: The cash-and-stock deal -- Sterling shareholders will receive 1.671 shares of Umpqua and $2.18 in cash for each share -- values Sterling at about $30.52 per share and represents a premium of 15% to its closing price on Tuesday. The transaction will create the West Coast's largest community bank with approximately $22 billion in assets, but judging from Umpqua's 2% slide today, Mr. Market isn't thrilled with the price it's paying to do it.

Now what: Umpqua expects the acquisition to dilute its tangible book per share by 4.6% at closing, but it also believes its 2015 operating EPS will jump 12% as a result of the move. "Together, Umpqua and Sterling will create something unique in the financial services industry, an organization that offers the products and expertise of a large bank but delivers them with the personal service and commitment of a community bank," said Umpqua CEO Ray Davis. "With our size, shared cultures and financial strength, our combined organization will be uniquely positioned to deliver value for our associates, customers, communities and shareholders." So while Sterling's upside might be a bit limited at this point, Umpqua's newly bolstered scale might be a strong source of outsized gains going forward.  

Have you missed out on the massive gains in bank stocks over the past few years? There's good news: It's not too late. Bargains of a lifetime are still available, but you need to know where to look. The Motley Fool's new report "Finding the Next Bank Stock Home Run" will show you how and where to find these deals. It's completely free -- click here to get started.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2635169, ~/Articles/ArticleHandler.aspx, 11/26/2014 1:33:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement