- Key insights: Shareholders of Fifth Third and Comerica are celebrating the proposed merger, even as both banks face legal challenges from activist investors.
- What’s going wrong: If finalized, this would rank among the largest banking mergers seen in the last decade.
- Future outlook: The $10.9 billion deal still requires approval from the Federal Reserve to move forward.
On Tuesday, shareholders of both banks approved the proposed merger, valued at $10.9 billion, with a near-unanimous response, despite some vocal opposition from investors.
About 99.7% of Fifth Third shareholders and 97% of Comerica shareholders backed the deal, as announced on Tuesday afternoon. Tim Spence, the CEO of Fifth Third, noted that this investor backing represents an “important milestone.”
However, Spence mentioned last month that the banks are anticipating Federal Reserve approval, expressing confidence about navigating this final stage. They expect the acquisition to close in the first quarter of 2026.
Last month, the Office of the Comptroller of the Currency approved the merger. The Texas Department of Banking granted its approval on January 2, a spokesperson for Fifth Third stated on Tuesday.
This approval aligns with recent trends, as both Institutional Shareholder Services and Glass Lewis have endorsed the merger. The combined entity would create a $288 billion-asset institution, operating across the Midwest and Texas, with expanding operations in the Southeast.
“Merging these two longstanding organizations opens up new possibilities for innovation and community support,” stated Kurt Farmer, CEO of Comerica.
It’s somewhat unusual for shareholders to oppose a bank transaction of this magnitude. For instance, Capital One’s acquisition of Discover Financial faced pushback from various groups, yet it received almost unanimous approval before closing last May.
But these recent approvals for Fifth Third and Comerica don’t guarantee a smooth merger process. HoldCo Asset Management, a hedge fund with a stake in Comerica, is currently seeking to halt the merger, alleging flaws in the sale process. They argue that Comerica did not adequately pursue other buyers or negotiate effectively.
Initially, HoldCo had pressured Comerica to explore a sale last year. But following the announcement of the merger with Fifth Third in October, they took legal action against the bank. HoldCo intends to use insights garnered during discovery, including board documents, to argue that Comerica did not meet its responsibilities to its shareholders.
Despite these challenges, Spence previously expressed optimism about getting regulatory approval “around the new year,” highlighting ongoing discussions with regulators without any cause for concern.
Since the merger announcement, Fifth Third’s stock has surged over 12%, while Comerica’s shares have risen more than 30%.
HoldCo announced last month that it would vote against the agreement, citing “significant upside and limited downside” in doing so.
They criticized that some crucial information regarding Comerica’s sale evaluation process and its negotiations with potential buyers was lacking. One prospective buyer, labeled “Financial Institution A,” was later reported to be Regions Financial.
Comerica has been releasing additional information regarding its negotiations with Fifth Third and other offers it might have received.
Remarkably, the two banks signed the merger agreement in just 17 days, making it one of the fastest deals despite its significant scale.
In their legal filings, HoldCo suggested that the deal’s expedited nature stems from concerns that hedge funds could instigate proxy challenges this coming spring. As of December, HoldCo managed assets worth approximately $182 million aligned with Comerica’s market value, or around 1.6% of the outstanding shares.
ISS and Glass Lewis have both commended HoldCo’s activism, urging shareholders to back the deal while calling for more transparency regarding the transaction details.
“These nuanced materials underscore HoldCo’s critical role in facilitating this endeavor. Without this dissent, we might not have seen any movement towards a sale,” stated Glass Lewis in its report.
