Arkansas Business

The combination of cash and stock in the proposed $280 million buyout of Liberty Bancshares offers stockholders in the Jonesboro bank holding company immediate reward and tax-deferred possibilities.

The largest in-state bank transaction in Arkansas history features a blend of $250 million in Home BancShares stock and $30 million cash and is expected to close late in the third quarter or early in the fourth quarter of 2013.

Unveiled at a news conference last week, the definitive merger agreement between Home BancShares of Conway and Liberty is subject to approval by both company’s shareholders as well as regulators.

“I don’t see anything there that’s going to throw a wrench in it,” said Randy Dennis, president of the Little Rock bank consulting firm of DD&F Consulting Group.

The family of Wallace Fowler, chairman and CEO of Liberty Bancshares, owns about 20.4 percent. Their stake in Liberty is worth about $6.1 million cash and about $51.1 million in Home BancShares stock.

Such an exchange would position the Fowler family among the five largest shareholders at Home BancShares. The inclusion of cash, which Home BancShares Chairman John Allison called “train-riding money” for Liberty stockholders, adds a stabilizing component to the transaction.

“You want to have some liquidity, so people don’t run and sell their stock,” Dennis said. “This way people will have some cash in their pocket.

“You have to balance that with the stock, and the stock has good upside.”

Determining the mix of cash and stock can be art as much as science.

The more cash used, the more tangible book value becomes diluted.

That consideration has to be weighed against issuing more shares of stock to add to the mix, which can dilute earnings per share.

Dennis notes that at least half of the transaction value needs to be reflected in stock to satisfy the IRS and facilitate a tax-free exchange.

Home BancShares stock rose from about $21 per share before news of the merger broke ahead of the 3 p.m. press conference to more than $25 per share.

The combination of $4.2 billion-asset Centennial Bank, the Home BancShares franchise, with $2.8 billion-asset Liberty would create the second-largest banking concern based in Arkansas.

“The challenge is in the implementation of it,” Dennis said. “Home BancShares by itself doesn’t have the team in place to do it. Putting them together is where the real magic lies.

“Neither has the capability of supporting a $7.1 billion institution. Both sides have good people, and it will take good people to move forward.”