Royal Financial (RYFL) – Merger Arbitrage With Odd Lot – 7% Upside

Current Price: $18.62

Offer Price: $19.84

Upside: 7%

Expected Closing Date: Q1 2022

Press release


This is a nano-cap bank merger with an unusual odd lot provision. Finward Bancorp is acquiring Royal Financial. RYFL shareholders, who own 101 shares or more will be able to choose from $20.14/share in cash or 0.4609 FNWD shares, subject to a total maximum cash proration of 35%. Owners of less than 101 shares will receive only cash. Assuming maximum cash proration, the upside stands at 6.5% and for odd-lots - at 8% or $152. 15k shortable shares are available on IB at 2.8% ann. fee. Daily trading volume is $100k+. Shareholder approval from both companies will be required. The merger is expected to close in Q1 2022.

Strategic rationale is pretty straightforward - branches of both banks are quite close to each other and FNWD is looking to expand and strengthen its market presence in Chicagoland. The buyer also plans to close at least one RYFL location and expects the merger to be 21% accretive to 2022 earnings and 25% accretive to 2023 earnings. TBV earn back is estimated at 2.3 years. The loan portfolio's of both banks are quite similar with the focus on residential and commercial real estate. The offer comes at 1.1x TBV and 9.8x FY21 P/E, in line with FNWD's current valuation, despite the buyer being slightly more profitable historically. FNWD directors own 13.7% of shares and RYFL insiders own 23%.

The downside to pre-announcement seems limited, however, we will likely see at least 1 more financial report until closing.


Finward Bancorp

The buyer operates Peoples Bank with branches Lake and Porter Counties, Northwest Indiana, and South Chicagoland. 22 locations. $1.6bn total assets.

Historical FNWD performance:

In 2018/2019 FNWD (previously known as NWIN) acquired AJS Bancorp with a similar consideration structure (included odd lot provision). The offer was priced at 1.09x TBV. The idea was covered on SSI and closed successfully.


Royal Financial

Royal Financial operates 11 branches in Chicago with $533m in total assets.

Historical RYFL performance:




  1. Zulu Investor

    Why does there need to be an odd lot provision for a company that is about to be acquired? It is kinda strange to me indeed.

    1. Lukas

      While it does seem strange on the face of it, it is likely due to small minority shareholders being a hassle for the company, i.e it wants to get rid of them. A similar situation is when a tender offer is launched with an odd-lot provision.

    2. AV

      The acquirer probably doesn’t want to add a bunch of (very) small shareholders to its ownership base.

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