Recently posted documents on the Securities and Exchange website provide background regarding MidWestOne Financial Group’s Aug. 22 announcement it will purchase ATBancorp, a $1.4 billion holding company for American Trust of Dubuque, Iowa and American Bank & Trust of Cuba City, Wis. The Iowa City-based MidWestOne is paying about $170 million in stock and cash; the deal is expected to close in the first quarter of 2019.
According to the Form S-4 SEC document filed by MidWestOne on Oct. 19, the leadership at ATBancorp decided to consider “strategic options,” including a sale or merger, after internal discussions that took place during spring and summer of 2017. Leadership initially decided to sell its 83 percent stake in a California bank called United American Bank. ATBancorp leadership, which includes Nicholas J. Schrup III as chairman and president, and Charles J. Schrup III as vice president, determined it made sense to sell the California asset because it was not a particular fit for its other two banks, located in the Midwest.
Hiring Sandler O’Neill to facilitate a transaction, ATBancorp sold its stake in the bank to Heritage Commerce Corp of San Jose, Calif. The deal closed on May 4, 2018, with ATBancorp receiving $9.1 million in cash, plus Heritage stock worth $39 million. ATBancorp sold the stock within a week.
“Throughout the winter of 2017 into 2018, the ATBancorp board of directors and management team continued their general discussions of ATBancorp’s strategic alternatives,” the Form S-4 states. ATBancorp again hired Sandler O’Neill to help it explore options, including finding a potential buyer.
Sandler O’Neill worked with ATBancorp’s legal counsel, Barack Ferrazzano Kirschbaum & Nagelberg. During the first two weeks of April 2018, Sandler O’Neill contact 15 potential acquirers; nine signed confidentiality agreements to explore the opportunity further. MidWestOne was among the nine.
As part of the process, senior leadership at MidWestOne met in person with senior leadership at ATBancorp in Iowa City on May 14. Of the nine parties considering the acquisition of ATBancorp, three parties other than MidWestOne indicated a desire to explore the opportunity further. Two of the other parties met in person with ATBancorp leadership, and in the third case, leaders of the two organizations communicated via conference call. However, MidWestOne was the only party to purse the deal.
On May 17, MidWestOne delivered to Sandler O’Neill a preliminary, non-binding letter of intent indicating its interest in acquiring ATBancorp, offering approximately $185.0 million in stock and cash (50 percent-50 percent). The parties negotiated, and on June 6, MidWestOne submitted a revised non-binding letter of intent with ATBancorp, offering an implied price of $201.7 million in a deal that was 75 percent stock and 25 percent cash. The proposal allowed for the payment of a special pre-closing dividend of $20 million, with such dividend representing a portion of the proceeds to ATBancorp from the sale of Heritage Commerce Corp stock, which had not yet been distributed.
After further negotiation, MidWestOne submitted another non-binding letter, maintaining the $201.7 million price, but increasing the allowable special dividend to $21.8 million. ATBancorp agreed to this offer, signing the letter of intent on June 11.
On June 19, Barack Ferrazzano provided MidWestOne a first draft of a merger agreement. The parties exchanged several drafts of the agreement in the coming weeks. On July 2, the parties entered into a confidentiality agreement to allow ATBancorp to conduct a more comprehensive diligence review of MidWestOne’s non-public information. The Form S-4 notes the parties conducted in person meetings on July 2 and July 20.
On July 23, MidWestOne informed ATBancorp of its intention to revise the financial terms of the transaction in light of, among other things, its decision to not acquire ATBancorp’s retirement planning business, and certain related assets. During the next two weeks, the parties negotiated revised pricing terms and the mechanics of disposing of ATBancorp’s retirement business prior to closing.
On August 3, MidWestOne offered revised financial terms, which provided for an aggregate implied purchase price of $168.1 million, payable 75 percent in stock and 25 percent in cash, with an increase in the allowable special dividend to ATBancorp shareholders of $31.8 million.
On August 21 the parties executed the merger agreement. Prior to the opening of the markets on August 22, they issued a joint press release to make the deal public. The press release states a price of $170.3 million based on MidWestOne’s August 20 stock price of $32.92 per share.