Shares of Fifth Third Bancorp fell below an important chart level Monday after the bank announced it would acquire Comerica, whose shares rallied on the news.
Early Monday, Fifth Third said it agreed to acquire Dallas-based Comerica in a stock deal valued at $10.9 billion. The combination creates the nation's ninth-largest bank, with some $288 billion in assets.
Cincinnati-based Fifth Third said the deal is part of its strategy to increase geographic reach into higher-growth regions and services for middle-market (i.e., midsize) businesses.
"The combination of Fifth Third's award-winning retail banking and digital capabilities with Comerica's strong middle-market banking franchise and attractive footprint further strengthens Fifth Third's position in high-growth markets," the bank said in its announcement.
The combined bank will operate in 17 of the 20 fastest-growing markets in the country. By 2030, more than half of Fifth Third's branches will be in the Southeast, Texas, Arizona and California. It will also have two businesses – Commercial Payments and Wealth and Asset Management – with diversified earnings.
"This combination marks a pivotal moment for Fifth Third as we accelerate our strategy to build density in high-growth markets and deepen our commercial capabilities," Fifth Third CEO Tim Spence said in a statement.
Analyst reaction was limited and mixed. Wells Fargo maintained a buy rating and 52 price target, according to FactSet.
But CFRA Research analyst Alexander Yokum downgraded Fifth Third to hold from buy and cut the price target to 47 from 56. The 20% premium Fifth Third is paying is misleading because Comerica shares were already inflated by acquisition speculation, the analyst said in a note to clients.
Yokum also cited concerns about Comerica's growth in deposits and loan balances, and about its branch network demographic growth. On the plus side, Comerica brings solid credit quality and Fifth Third's "planned expansion of 150 new financial centers in Texas should help offset some demographic challenges."
Fifth Third And Comerica Stocks
Comerica's stockholders will get 1.8663 Fifth Third shares for each Comerica share, or $82.88 based on Fifth Third's closing price on Friday. That's a 20% premium to Comerica's 10-day volume-weighted average stock price. At the close, Fifth Third shareholders will own about 73% and Comerica shareholders about 27% of the combined company.
Comerica stock gapped up 13% in afternoon trading Monday, touching its highest mark since September 2022, IBD MarketSurge shows. Usually, shares of a company that's acquired stop trading once the deal is closed, unless the acquisition faces problems or another bidder emerges.
The deal is expected to close by the end of next year's first quarter.
Fifth Third stock fell 1% in late trading with volume tracking to be the highest in at least a year. Shares had been trying to rebound off the 50-day moving average and fell below it Monday. Watch for shares to rebound back above the line. If not, the stock could have more room to fall.
On Aug. 22, Fifth Third stock jumped 4.5% and cleared an entry at 44.34. It has a Composite Rating of 59, while Comerica has a 70 Composite.
