PNC Inks $11.6B Mega Banking Deal To Buy BBVA’s US Business

PNC Financial Services has inked an agreement to snap up Banco Bilbao Vizcaya Argentaria’s (BBVA) US banking assets in a deal worth $11.6 billion.

PNC (PNC) announced that the transaction comprises BBVA USA Bancshares, Inc., including its US banking subsidiary, BBVA USA. The all-cash deal values the US business sold at 19.7 times its 2019 earnings and 1.34 times its tangible book value, as of Sept. 2020. NYSE-listed BBVA shares closed 5.1% higher on Friday.

Headquartered in Texas, BBVA (BBVA) USA Bancshares, which has $104 billion in assets, provides commercial and retail banking services through its banking subsidiary BBVA USA and operates 637 branches in Texas, Alabama, Arizona, California, Florida, Colorado and New Mexico. In combination with PNC’s existing footprint, the company will have a coast-to-coast franchise with a presence in 29 of the 30 largest markets in the US.

PNC expects the transaction to be approximately 21% accretive to earnings in 2022. It will be funded from the proceeds of its 22.4% stake sale in BlackRock back in May of this year.

“Our acquisition of BBVA USA will accelerate our growth trajectory and drive long-term shareholder value through a strategic deployment of the proceeds from the sale of our BlackRock investment,” said PNC CEO William S. Demchak. “This transaction is an opportunity to navigate our future from a position of strength, accelerating PNC’s national expansion strategy while drawing on our experience as a disciplined acquirer.”

Through the acquisition, PNC will add about $86 billion of deposits and $66 billion of loans based on BBVA USA’s Sept. 30, 2020 balance sheet. The financial services company expects to incur merger and integration costs of $980 million, inclusive of $250 million in write-offs of capitalized items, and achieve cost savings in excess of $900 million. The deal is estimated to close in mid-2021 pending regulatory approvals.

In the runup to the deal, PNC shares rose more than 7% over the past five days, trimming their year-to-date decline to 23%. (See PNC stock analysis on TipRanks).

Following PNC’s 3Q20 earnings release last month, Oppenheimer analyst Chris Kotowski reiterated a Hold rating on the stock, saying that valuation keeps him on the sidelines.

“Management is still talking in guarded terms about how it will be no fun to be a bank in the 2020-21 and that this should shake loose some M&A opportunities. PNC also seemed optimistic about being able to restart share buybacks in the new year. Either of these could be significant catalysts, but we suspect both will take some time to accomplish,” Kotowski wrote in a note to investors. “Like most banks, we think PNC is significantly undervalued and is a strong core holding in the regional bank group. For the time being, however, we would prefer to own the large investment and universal banks.”

Currently, the rest of the Street has a cautiously optimistic outlook about the stock. The Moderate Buy analyst consensus breaks down into 5 Buys, 5 Holds and 1 Sell. The average price target of $119.71 implies downside potential of 2.5% to current levels.