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Fifth Third’s stock tumbles as high price of MB Financial buyout turns Instinet analyst bearish

Shares of Fifth Third Bancorp tumbled 8.2% in afternoon trade Monday, putting them on track for the biggest one-day selloff in two years, after the regional bank’s deal to buy MB Financial Inc. in a $4.7 billion deal pushed Instinet analyst Bill Carcache to turn bearish. Carcache cut his rating to reduce, after being at neutral since January 2017, and slashed his stock price target to $31 from $36, as he said the deal represents a “painful blow” to Fifth Third’s existing shareholders. “At issue, in our view, is the high cost of the [MB Financial] acquisition,” Carcache wrote in a note to clients. The deal is financed 90% with Fifth Third stock and just 10% with cash. Carcache said the fact that Fifth Third is using its shares, which trade at 11.8-times next-12-month (NTM) earnings per share (EPS), as currency to acquire a target that trades at 14.7-times NTM EPS, shows the high cost will be borne by Fifth Third shareholders. MB Financial shares ran up 12.5%. Over the past three months, Fifth Third’s stock has lost 7.8%, MB Financial shares have rallied 17.2%, the SPDR S&P Regional Banking ETF has gained 2.4% and the S&P 500 has tacked on 1.2%.

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