PacWest's sale to Banc of California 'provides closure' and is a win for shareholders: analyst

By Steve Gelsi

PacWest's stock holds gains in premarket trading after it agrees to be bought by Banc of California

PacWest Bancorp's stock held on to big gains on Wednesday after it announced it has agreed to be acquired in an all-stock deal by Banc of California Inc. Analysts mostly praised the transaction.

The combination of PacWest Bancorp (PACW) and Banc of California (BANC) provides closure to the evolving turnaround at PacWest, KBW analyst Christopher McGratty said.

PacWest's stock rose 30% in premarket trades to $10 a share, gaining back all of its losses from late Tuesday, when the deal was initially reported ahead of the formal announcement. The two companies formally announced the tie-up after the market closed on Tuesday.

Expectations had already been high for either a sale or other major strategic move when Paul Taylor became CEO of PacWest in early 2023, McGratty said. But then in March, Silicon Valley Bank collapsed, followed by Signature Bank and First Republic Bank.

"Relative to expectations during the height of the banking crisis, this is a win for [PacWest] shareholders, especially since Silicon Valley Bank, First Republic and Signature Bank shareholders were left with zero," McGratty said in a research note. "However, relative to expectations for [PacWest] at the start of the year, the terminal value is much lower than previously expected."

Beaten up by speculation that the bank would collapse after the failures of the other three banks, PacWest's stock has lost about two-thirds of its value in 2023.

The implied takeout price of PacWest based on the stock-for-stock deal terms is about $9.60 a share, which is higher than many had estimated and a net positive for the banking sector, McGratty said.

Meanwhile, Wedbush analyst David Chiaverini reiterated a neutral rating on PacWest and said the deal "represents a fair, but not overwhelmingly compelling" price.

"We ultimately expect the deal to get approved, but we wouldn't be surprised if there were some dissent among a minority of shareholders [that would] possibly open the door to the potential emergence of a rival third-party bid," Chiaverini said.

D.A. Davidson analyst Gary Tenner reiterated a buy rating on Banc of California and said the deal is "financially attractive" and will benefit shareholders of both banks.

He raised his price target for Banc of California to $21.50 a share from $17.50 a share and boosted his 2024 profit target for the bank to $1.61 a share from $1.55 a share.

Also read:PacWest lifts bank stocks as it raises more cash from loan sale

-Steve Gelsi

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07-26-23 0922ET

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