(Reuters) - U.S. regional bank Fifth Third Bancorp <FITB.O> has agreed to buy smaller rival MB Financial Inc <MBFI.O> in a stock-and-cash deal valued at about $4.7 billion (3.5 billion pounds) as it looks to expand in Chicago and broaden its middle market customer base.
A windfall from last year's Republican tax overhaul has encouraged more investment among mid-sized U.S. lenders and banks are also hopeful that legislative moves to roll back some rules on capital requirements will free up more cash.
That runs contrary to the several years of minimal merger activity in the sector due to stricter rules brought in after the 2008 financial crisis which effectively put limits on expansion.
As part of the deal announced on Monday, each MB Financial shareholder will get $54.20, comprising 1.45 shares of Fifth Third common stock and $5.54 in cash, a 24 percent premium to MB Financial's last close.
The merger with Chicago-based MB Financial will result in the combined entity having a total Chicago deposit market share of 6.5 percent, ranking it fourth in total deposits among the nearly 200 banks in the marketplace, Fifth Third said.
Fifth Third Bank, which operates 1,300 branches and 2,600 ATMs across 12 states, said the deal is expected to reduce it's regulatory common equity Tier 1 (CET1) ratio by about 45 basis points.
Fifth Third also said once the deal closes, two members of MB Financial's Board of Directors were expected to join the Fifth Third Bancorp Board.
Citi served as financial adviser to Fifth Third, while Sandler O’Neill + Partners advised MB Financial.
(Reporting by Nikhil Subba in Bengaluru; Editing by Shailesh Kuber)
