First Midwest Bancorp Undervalued, But Without Much Agency To Create Value

 

The announcement of the merger of equals between Old National (ONB) and First Midwest Bancorp (FMBI) took a lot of analysts and investors by surprise, as most expected these two banks to remain independent consolidators of other Midwestern banks. Given that the market doesn’t really like whole bank M&A all that much, and definitely has its doubts about mergers of equals, it’s not altogether surprising then that these shares have lagged the regional bank index since the deal was announced.

I think both Old National and First Midwest are undervalued today, but I’m slightly more favorable on First Midwest. First, this is the bank I’d rather own between the two, so if the deal were to fall apart, this is the one I’d rather hold for the longer term. Second, with the shares trading very slightly below the implied deal ratio (at least as of this writing), it’s the incrementally cheaper of the two relative to my post-merger assumptions.

 

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First Midwest Bancorp Undervalued, But Without Much Agency To Create Value