Cardinal Financial Takeover Price In Line With KBW Expectations

KBW has downgraded Cardinal Financial Corporation (NASDAQ: CFNL) to Market Perform from Outperform following its agreement to sell itself to United Bankshares, Inc. (NASDAQ: UBSI) for a "deserved premium."

The brokerage also raised its price target to the deal value to $27 (from $24), which is based on its $38 price target for United Bankshares and the 0.71 exchange ratio.

"UBSI's currency (2.6x TBV), size ($14 billion pre-merger), conservative culture and focus on growing in the DC / VA markets makes the company a good strategic fit for CFNL, in our view, and was one of the few banks that we believed could afford CFNL's premium valuation," analyst Catherine Mealor wrote in a note.

Related Link: United Bankshares And Cardinal Financial Announce Merger Agreement

However, the need for $200 million in capital dilutes the ultimate accretion in the deal (from 10–11 percent down to 3–5 percent). But, Mealor still views the acquisition as favorable for UBSI shareholders, "as it serves as a strategic way for UBSI to cross $15 billion, and effectively offset the impact of a capital raise that was going to be inevitable near term."

In addition, United Bankshares will get "a high-quality franchise and team to take growth and market share to the next level in the Washington, D.C., metro area."

"Plus, significant bank-level cost savings, and revenue synergies in the mortgage business should benefit UBSI over time as well," Mealor added.

Shares of Cardinal Financial closed Friday's regular trading session at $26.37, while shares of United Bankshares ended at $38.71.

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