Sterling’s biggest asset? Acquiring minds

Sterling Financial Corp. has been the merger machine of Northwest banking almost since the doors opened in 1983. The Spokane bank has pulled off 13 acquisitions in 23 years, with a 14th pending. The folks at Sterling know the drill.

A good thing, because without that practice they might not have been able to respond this spring to an unexpected opportunity; the availability of FirstBank NW Corp. Monday, Sterling officials announced an agreement to purchase Clarkston-based FirstBank for almost $170 million. It was not a deal they were looking for.

It was a deal FirstBank was looking for, reluctantly.

“FirstBank had a shareholder who was not pleased. A shareholder who had not been pleased for a long time,” says Sterling Executive Vice President Heidi Stanley.

That shareholder, FirstBank’s largest, was Crescent Capital VI LLC, a Bellevue-based investment company that had purchased almost 10 percent of the bank’s outstanding stock in 2003 and 2004. FirstBank President Clyde Conklin says Crescent representatives made clear early on they wanted to see the bank expand into Spokane, Seattle and Portland.

“There’s a lot of risk involved in a strategy like that,” Conklin says, risk FirstBank executives were unwilling to take given how successfully they were growing the bank in the less urban communities of Idaho, Washington and Oregon.

He says accepting Crescent’s strategy would have amounted to accepting a change of control. FirstBank officers declined. Crescent responded with a Feb. 1 letter announcing their intention to buy the bank. FirstBank was officially in play.

The bank and suitor renewed their discussions. On April 6, Crescent Managing Director Jeff Gow and Steve Wasson, a former U.S. Bank executive vice president, explained their proposal to a special meeting of FirstBank’s board of directors.

Meanwhile, however, bank advisers had made it known the bank would entertain alternative offers. Stanley says Sterling was approached. Conklin says Sterling inquired. Either way, the upshot was a decision to pursue negotiations with Sterling instead of four other unidentified institutions that showed interest.

Conklin says Sterling’s similar corporate culture, products and commitment to community service weighed in its favor, but the decision ultimately came down to the bottom line.

Crescent had made a final, $20.50-per-share offer, with a request the bank respond by May 19. Conklin says FirstBank passed, and has not heard from Crescent since. Sterling’s offer of stock and cash is worth slightly more than $27 per share based on the June 2 closing price.

“It fully values the bank,” says Conklin, who adds he does not expect any further bids from Crescent or anyone else. Crescent, by the way, owns more than 500,000 FirstBank shares, all purchased for less than $14.50 apiece. The firm wins despite losing.

Conklin, who has been with FirstBank 19 years, will step down once the deal closes sometime late this year. He says his emotions are mixed: Satisfaction that directors maximized shareholder returns; disappointment that the region has lost a competitive financial institution, and the Lewiston-Clarkston area a major corporate headquarters.

“I feel a sense of loss that FirstBank as a financial institution is not going forward,” says Conklin, who adds that he will do all he can to make the change in control a smooth one.

That will be important for Sterling, given the premium it will pay for an institution that is already performing well.

Stanley says FirstBank is worth more to Sterling than it is to Crescent because of the potential efficiencies that will come with consolidation, and the extra heft additional branches will give Sterling in Idaho, particularly Boise.

With multiple mergers behind it, she says, “Sterling has the ability to look at a transaction and recognize where the value will be over time.”

Stanley says employee anxiety is normal during a transition to new ownership, but she notes Sterling currently has 250 openings across its four-state system. “We can’t get people in here fast enough,” she says.

Sterling, with $8 billion in assets as of May 31, would be a bank one-quarter the size if Chairman Harold Gilkey and the rest of the bank’s leadership — much of which has been in place since the bank opened — had not learned to assess opportunities, pass on those that were not a fit and seize on those that were, even if the timing was not of their choice, Stanley says.

“You play the game as it’s laid out for you,” she says. “You have to be nimble.”

You have to know the drill.