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Sterling Bancshares Popped: What You Need to Know

By Matt Koppenheffer – Updated Apr 6, 2017 at 11:58PM

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Is this meaningful? Or just another movement?

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 Texas bank holding company Sterling Bancshares (Nasdaq: SBIB) jumped nearly 20% in intraday trading today after Comerica (NYSE: CMA) announced that it will acquire the smaller bank.

So what: Comerica will give Sterling shareholders 0.24 shares of Comerica stock for each Sterling share, which -- based on Comerica's 15-day average closing price -- values Sterling at $10 per share, or just over $1 billion in total. For some time, Comerica has been working to grow its business outside of the struggling Michigan market, an effort that has included moving its headquarters in 2007 from Detroit to Dallas. The Sterling pickup will bolster the company's presence in Texas.

Now what: While Sterling shares were flying, Comerica shares hit the skids as its investors appeared to give the deal a thumbs-down. A chief concern seems to be the price. The deal values Sterling at roughly 2.3 times its tangible book value -- a healthy multiple for a bank during "normal" times, let alone the questionable times we're in now. Looking ahead, this deal tells us two things: (1) well-capitalized banks are on the hunt for acquisitions and (2) investors aren't going to be happy if banks pay up for those deals.

Want to keep up to date on these stocks? Add Sterling Bancshares to your watchlist. Add Comerica to your watchlist.                

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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