Melrose Bank (MELR) – Merger Arbitrage – 10% Upside

Current Price: $22.70

Offer Price: $25.00

Upside: 10%

Expected Closing: Q2

Press release

 

One more tiny bank acquisition. Melrose Bancorp is getting acquired by privately held Cambridge Financial Group for $25/share in cash. MELR shareholder approval is required (meeting date will take place on the 28th of April). Closing is expected in Q2.

Acquisition was announced in Dec'19 and until the market fall MELR used to trade very tight (1%) until the spread widened to 19% at one point. So far since the initial announcement no further updates were made regarding the transaction, which is worrying, especially in the current market environment.

Melrose Bank has total assets of $341m and just one location in Melrose (several miles from Boston). Despite that, the bank is consistently profitable.

MELR

The offer looks fairly priced - although P/BV is lower than peer average acquisition multiple (1.68x), we have to take into account that MELR is a 1 branch/low profitability bank. Overall, shareholder approval is likely to be received.

MELR will be merged into Cambridge Savings Bank (Cambridge Financial subsidiary) - Massachusetts' community bank with $4.7bn assets and 16 branches in/around Boston.

 

Note: Due to recent market crisis spreads have exploded for numerous M&A transactions. Although the return might seem attractive, the risk - both of transaction termination and materially larger downside - has increased substantially. There have already been several instances (e.g. TTLO) of merger cancellations.

1 COMMENT

  1. Ilja

    Late update – shareholders have approved the merger and the spread shrunk to 1.6%. With further uncertainty regarding buyer’s intentions to proceed, the idea is closed with 8% in 1.5 months.

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