Banc of California and PacWest Bancorp (PacWest) have agreed to combine in an all-stock merger transaction to create a premier business banking franchise in California.

In addition, Banc of California has signed agreements with affiliates of Warburg Pincus and Centerbridge Partners to raise around $400m equity.

Under the terms of the merger agreement, Banc of California and PacWest will merge with, and into each other, with Banc of California as the surviving entity.

PacWest stockholders are anticipated to receive 0.6569 of a share of Banc of California common stock for each share of PacWest common stock held.

The transaction has been unanimously approved by the boards of directors of both companies.

The business combination is expected to be completed in late 2023 or early 2024, subject to the satisfaction of certain customary closing conditions.

The conditions include receipt of customary required regulatory approvals and requisite approval by the stockholders of each company and the closing of the equity capital raise.

The equity capital raise is anticipated to close simultaneously with the merger, subject to the concurrent closing of the merger and other closing conditions.

Upon closing of the transaction, the combined company would have around $36.1bn in assets, $25.3bn in total loans, $30.5bn in total deposits and more than 70 branches in California.

PacWest stockholders will have around 47% of shares, equity capital investors will have around 19% of shares, and Banc of California will have nearly 34% of shares in the combined company.

As part of the transaction, Banc of California president and CEO Jared Wolff will continue in the same role at the combined company.

PacWest board independent lead director John Eggemeyer will be appointed as the chairman of the combined company’s board of directors, upon closing.

Jared Wolff said: “This transformational merger will create a robust, well-capitalized and highly liquid institution poised to deliver exceptional service to even more California businesses and communities.

“We believe both Banc of California and PacWest stockholders will benefit from the compelling economics of the combined company and its enhanced ability to deliver profitable and sustainable growth.

“Out of the gate, the combined company will have the strength and market position to support the banking needs of small and medium-size businesses in California and to capitalise on the opportunities created for stronger financial institutions in the wake of the recent banking industry turmoil.”

Under the equity capital raise transaction, Banc of California will sell around 21.8 million shares of its common stock at a purchase price of $12.30 per share.

Also, the company will sell 10.8 million shares of a new class of its non-voting, common-equivalent stock at a purchase price of $12.30 per share to the Investors.

In addition, the Warburg Investors will receive warrants to buy around 15.9 million shares of Banc of California non-voting, common-equivalent stock.

Centerbridge Investors will receive warrants to purchase nearly three million shares of Banc of California common stock, each with an exercise price of $15.375 per share.

The warrants carry a term of seven years but are subject to mandatory exercise when the market price reaches $24.60 over a specified period.

Banc of California intends to use proceeds from the capital raise to strengthen the combined company’s balance sheet and generate material savings, along with other planned actions.

PacWest president and CEO Paul Taylor said: “This merger is a tremendous opportunity for PacWest’s stockholders, customers, communities and employees, representing significant immediate and long-term value beyond PacWest’s standalone strategic plan.

“I am honoured and extremely proud of the PacWest team’s fortitude over the past several months amidst industry-wide volatility.

“With the combined strength of both institutions, new capital from investors that are committed to the strategic vision and value creation of this merger, and a proven track record of successful integrations, the combined company will be well-positioned to provide significant value for the long term to all of our constituents.”