In recent news, Northwest Bancshares (NASDQ:NWBI) has agreed to buy Donegal Financial Services for an $85 million deal made in cash and stock transactions, that is expected to give a big boost to Northwest’s presence in Lancaster, PA.
Directly prior to the deal closing, Donegal Financial will pay out $30 million in dividends to its two shareholders, Donegal Group Inc and (NASDAQ:DGICA) and Donegal Mutual Insurance.
Northwest Bancshares believes this deal will cause an immediate increase to their earnings, excluding the one-time costs. Once they achieve their predicted yearly cost savings of around 40% of Donegal Financial’s expenses, NWBI expects this deal to add to their annual EPS by 5 cents starting in 2019.
The acquisition is also expected to elevate NWBI’s return on average common equity to around 8.7%, from its previous rate of 8.4% after the first year of combined actions. The buyout price will be paid half in cash and half in stock, with the stock portion which is made up of 137.84 NWBI shares for each one of Donegal’s 17,864 outstanding shares.
However, this exchange ratio can possibly be changed if NWBI’s stock is worth less then $15.53 or goes higher then $18.99 within a specific period of time. When the market closed yesterday, NWBI’s stock was at $17.69.
By using cost savings assumptions, the purchase price of Donegal Financial Services has a value that is 10.6 times the earnings granted in the acquisition. Based on the actual earnings of the financial group after March 31, 2018, at the quarters end, the price actually came to 16.2 times the actual earnings.
Donegal Group also expects to receive an after-tax increase of $8.9 million-$12.5 million which is equivalent to 32-45 cents per Class A common share. (Source: SeekingAlpha.com, “Northwest Bancshares buys Donegal Financial Services for $85M)