PacWest Bancorp (ticker: PACW) recently found itself on a rollercoaster ride following reports of a potential acquisition by Banc of California (BANC). After The Wall Street Journal broke the news on Tuesday afternoon, PacWest stock plummeted by 27%, while Banc of California's stock rose by 11%.
The market's reaction to the news was puzzling, as the full implications of the acquisition were not immediately clear. However, once the official announcement was made after the market closed, PacWest began to recover its losses, with the stock now up by an impressive 27%. On the other hand, Banc of California has only experienced a slight gain of 0.1%.
When examining the two-day performance, Banc of California has seen an overall increase of 11%, while PacWest has suffered a decline of 7.3%. This outcome aligns with the terms of the acquisition. Each PacWest shareholder will receive 0.6569 shares of Banc of California for every share they currently own. Simple calculations suggest that this exchange is valued at approximately $9.60, closely mirroring PacWest's current trading price.
In addition to the merger, Warburg Pincus and Centerbridge Partners will be injecting $400 million in equity into the combined companies. This infusion of capital is expected to strengthen the financial organization, which has faced challenges following the earlier disruptions faced by Silicon Valley Bank and other banks this year.
DA Davidson analyst Gary Tenner comments on the merger, stating that it may have come as a surprise in terms of timing but is financially appealing and advantageous for shareholders in both institutions.
While the financial rationale for the merger makes sense, the significant fluctuations in PacWest stock remain somewhat mysterious. Perhaps more time and analysis are required to fully comprehend the market's reaction to this development.