Another Banking Merger to Defend Against the Big Competitors: F.N.B. Corp (FNB), PVF Capital Corporation (PVFC)

How the Deal Is Structured

Under the terms of this deal, PVF Capital Corporation (NASDAQ:PVFC) shareholders of record on a yet-to-be-determined date will receive exactly 3.405 F.N.B. Corp (NYSE:FNB) shares for every 10 PVF shares that they own. At FNB’s current share price, this pegs the value of each PVF share at approximately $3.91 per share. Relative to PVF Capital Corporation (NASDAQ:PVFC)’s current share price of $3.70, this represents a premium of 5.7 percent.

Complications and Legal Issues

As is customary for mergers of this type, the proposed deal between F.N.B. Corp (NYSE:FNB) and PVF Capital Corporation (NASDAQ:PVFC) is subject to full votes by PVF’s shareholders and board of directors. It is unclear when these votes will take place. In addition, the deal is likely to be scrutinized by the appropriate financial regulators. Due to the small size of the two parties, this regulatory approval process should be cursory.

There are some pending legal issues that may serve to delay or complicate the deal. In mid-2007, another bank offered to purchase PVF for about $131 million dollars. This represents a premium of nearly 30 percent to the current offer price. Although the deal was eventually voided when the other party backed out without explanation, the memory of the “almost-buyout” has lived on in the minds of the company’s shareholders. The comparatively low valuation of the current proposal is due primarily to the fact that economic conditions have worsened measurably since 2007.

This is the gist of a pending legal investigation of the deal. Since such investigations are quite common in advance of “low-balled” deals, this action should not cause PVF Capital Corporation (NASDAQ:PVFC) shareholders to panic. However, investors who wish to play this transaction for the decent arbitrage premium that it offers should be aware that they may expose themselves to significant downside risk as a result of the ongoing investigation. At the same time, it is relatively unlikely that this deal will not go through as planned.

Long-Term Prospects and Outlook

Assuming that this transaction does take place, the combined company will be in a solid competitive position. In a broader sense, it may also benefit from economic tailwinds within its trade area. While the Rust Belt region has been shedding jobs and losing population for years, there are plenty of reasons to believe that its fortunes have finally shifted. Specifically, the Pittsburgh area has become an incubator for medical technology and cloud-computing start-ups. Meanwhile, Cleveland’s real estate crash has created tremendous investment opportunities in the city and its inner suburbs. The combined company could well benefit from an increasing number of loan prospects in these three industries.

In short, the proposed merger between F.N.B. Corp (NYSE:FNB) and PVF Capital Corporation (NASDAQ:PVFC) offers an arbitrage opportunity of better than 5 percent and may be attractive for long-term investors as well. With a dividend yield of over 4 percent and a stable loan portfolio, FNB is a classic buy-and-hold stock. In the coming years, it may reward investors who jump in at these levels.

The article Another Banking Merger to Defend Against the Big Competitors originally appeared on and is written by Mike Thiessen.

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