West End Indiana Bank (WEIN) – Merger Arbitrage – 3% Upside

Current Price: $34.80

Merger Consideration: $34.91 – $36.81

Spread: 0%-6%

Expiration Date: expected Q1 ’20


This is an illiquid (avg. volume $15k per day) nano cap ($37m) bank acquisition with limited available information available. The situation is very similar to BFFI.

Three Rivers Federal Credit Union (private) is acquiring West End Bank at $34.91-$36.81/share. Transaction has been approved by the board and has yet to be approved by BFFI shareholders (date not set yet).

Downside to pre-announcement price is 19% (Aug’19).


Merger consideration

According to the PR eventual price will depend on several things:

  • WEIN equity level at closing;
  • The amount of cash held by WEIN at closing;
  • Costs related to the dissolution of West End Bank and West End Indiana Bancshares and the distribution of the remaining assets to stockholders and future operating results;
  • Other costs (employee compensation, benefits etc.)

As with BFFI, press release does not explain to what degree any of the above are already reflected in the given merger consideration range. Merger Agreement is not publicly available. Also the exact same with with uncertain treatment of the liquidation account (see BFFI write-up for details on this). From the press release:

Since the sale of assets and liabilities to a credit union by an institution which had converted from mutual to stock form under the current federal rules has not yet been implemented by any other institution, there are certain uncertainties associated with the treatment of the liquidation account. As a result, we cannot predict at this time whether the organization will be required to distribute the remaining liquidation account to certain depositors of West End Bank, the amount of any such distribution, and the ultimate impact of any required payments on the amount of cash to be received by West End Indiana Bancshares stockholders in this transaction.

Short background on the companies

West End Bank operates four branches in Indiana and has about $300m in assets. The acquisition comes at around 1.20x TBV (high end), which is even lower than BFFI (1.30x), however WEIN is consistently profitable even if ROE is quite low at around 3%-4% (profitability has somewhat declined over the last two quarters). Over the last two years bank traded at around 0.9xTBV, so acquisition price represents a decent premium over the historical levels.

Three Rivers Federal Credit Union owns 16 branches located in Indiana.


5 thoughts on “West End Indiana Bank (WEIN) – Merger Arbitrage – 3% Upside”

    • I like this situation and have a relatively large position. Deal is close to the finish line. Buyer already has a detailed timeline online for former West End account holders: https://www.3riversfcu.org/welcomeweb/timeline/ . Cancellation does not seem likely to me (though of course there are the Covid-19 tail risks, as with any situation). Anyway, all things considered the current price seems ridiculous to me.

      What are the obscure conditions you mean? The liquidation account and/or the minimum equity requirement?

      • A large seller with an iceberg order at 33.90 is keeping the price down all week now. Let’s hope it’s not someone who knows something.

  1. I am not sure if I fully understand the part on making the required distribution to certain depositors. That part is obscure to me as well. How does one even derive a rough estimate for that? Any insights?

    The minimum equity part is relatively straightforward. The current offer price of $37-40 I think reflects the increase in the book value (30.3m/1.07m) x 1.23)) with a buyout multiple of 1.23x TBV~. This gets you $34.83 per share but I am using the figures from the year-end of 2019. So book value per share likely increased and the fact that they increased the estimated consideration to $37-$40 also attests to their business being largely unaffected by COVID-19. (Unless then decided to just up the TBV buyout offer.)


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