Old National acquiring Bremer Financial in $1.4 billion deal, much less than previous estimates

St. Paul-based Bremer Financial, the second largest bank based in Minnesota, will be sold to Old National Bank for $1.4 billion, culminating a five-year saga over Bremer’s future.

On Monday, Bremer and Evansville, Ind.-based Old National announced the deal, which will create the third-largest bank in Minnesota as measured by deposits.

But the $1.4 billion sale price is considerably less than previous estimates of Bremer’s worth, which were around $2 billion.

The 80-year-old Bremer is the only U.S. bank largely owned by a charitable trust — the Otto Bremer Trust. The bank and the trust have fought for five years over the bank’s future, with the trust pushing a sale.

That’s what it got Monday.

“Old National is no stranger to bank [acquisitions], especially finding partners in the Midwest with similar ... profiles,” Terry McEvoy, a stock analyst with Stephens Inc., wrote Monday. “Bremer was too good to pass up.”

Bremer has about 1,500 employees, including 1,200 workers in Minnesota, and operates 70 branches in Minnesota, North Dakota and Wisconsin. With $16 billion in assets, Bremer is the second largest Minnesota-based bank, though it’s dwarfed by Minneapolis-based U.S. Bank. Wells Fargo, the California bank that used to be based in Minnesota, is larger by deposits than Bremer.

Publicly traded Old National has 31 branches and about 350 employees in Minnesota, though its biggest book of business is in Indiana and Illinois. Old National, which has $54 billion in assets, also does business in Wisconsin, Michigan, Tennessee and Kentucky.

Old National estimated that the deal will lead to about $111 million in cost savings, about 30% of Bremer’s expense base. Those savings typically come from cutting redundancies, including jobs.

“There will be some impact [to employment],” Old National CEO Jim Ryan said in an interview.

Still, the company said in an investor presentation Monday that it will retain “key market personnel,” and Ryan told the Minnesota Star Tribune there “are no planned branch closures at this point.”

While there is some overlap between both banks’ locations in the Twin Cities, for the most part, the combination is complementary.

Bremer “looks and feels a lot like Old National Bank,” Ryan said. “Culturally and strategically, our missions overlap with each other in a deep and profound way. ... If you look at our footprint, it is predominantly midwestern.”

Old National entered Minnesota in 2017 with the $303 million purchase of St. Paul-based Anchor Bank. In 2018, Old National snapped up Chaska-based Klein Financial, a large Minnesota community bank, for $434 million.

“Since 2017, [Minnesota] has been one of our best markets in terms of growth opportunities,” Ryan said, adding that the leader of Old National’s wealth management business is based in the Twin Cities.

Old National controls $3.54 billion in Minnesota deposits; Bremer, $5.45 billion. Together, the two banks will be the state’s third largest bank by deposits at $8.9 billion, Old National said Monday.

U.S. Bank by far has the greatest market share in Minnesota with $111.3 billion in deposits, followed by Wells Fargo at $42 billion. Ohio-based Huntington National Bank, which bought TCF Financial in 2021, is currently third with $6.6 billion in deposits, according to Old National data.

Bremer Financial is the legacy of Otto Bremer, a German immigrant and a brewing and banking entrepreneur. In the 1940s, he consolidated his banking interests and transferred ownership to a trust upon his death in 1951.

The Otto Bremer Trust, which is funded by dividends from Bremer Bank, is one of Minnesota’s largest philanthropies, giving away $105 million to over 1,000 groups last year.

But the bank and the trust got into a bitter public battle in 2019.

Bremer Financial had explored a merger of equals with another bank. The trust, however, wanted an outright sale of Bremer Financial, which would maximize financial benefits to the charitable organization.

At the time, Bremer Bank was estimated to fetch about $2 billion in a sale.

While the trust owned 92% of the bank, it only controlled 20% of its voting shares. Bremer employees held 80% of the voting shares and 8% of Bremer’s total equity.

So the trust sold some of its shares in 2019 to several private equity firms — an effort to gain control of the bank’s voting shares and prompt a sale. Bremer Bank refused to recognize the sale of the shares.

Instead, the bank sued the trust’s three trustees, accusing them of engaging in a “disloyal scheme” aimed at enriching themselves through the sale of the bank.

In 2020, Minnesota Attorney General Keith Ellison brought a case against the Otto Bremer trustees, asking for their removal and echoing claims made by Bremer Financial.

Two years later, Ramsey County District Court Judge Robert Awsumb removed Brian Lipschultz, one of the three trustees. Lipschultz had allowed “his own personal interests, enmity or vindictiveness to impact his decisions and behavior as a trustee,” Awsumb concluded.

However, Awsumb said the Otto Bremer trustees were acting within their fiduciary duties to sell shares to private equity firms and ultimately sell the bank, not to enrich themselves as the attorney general and Bremer Financial had claimed.

Awsumb shot down most of the claims from the Attorney General’s Office, but Bremer Financial continued to pursue litigation against the Otto Bremer Trust in a separate suit.

In April, a ruling by Ramsey County District Court Judge Mark Ireland dealt a blow to Bremer Financial.

While he allowed Bremer to continue its suit against the Otto Bremer Trust, he ruled that the bank could not relitigate whether the trustees had breached their fiduciary duty in 2019 by selling stock to private equity firms.

In other words, Awsumb’s 2022 ruling was by law the final decision on that matter, Ireland ruled. Bremer appealed, but the Minnesota Court of Appeals affirmed Ireland’s decision in July.

Shortly after, the bank and the trust announced a settlement ending all litigation. The details weren’t made public. However, as part of the resolution, Bremer recognized the trust’s sale of shares to private equity outfits, according to a court filing.

The bank has been rumored to be up for sale in recent weeks.

When “the Otto Bremer Trust reaffirmed its interest in selling Bremer Bank, we appreciated the opportunity to identify a partner through a collaborative process to ensure the best possible outcome for our customers, employees, and our communities,” Bremer CEO Jeanne Crain said in a statement Monday.

“With Old National, we have confidence we found a great fit,” she said.

It’s not clear whether Crain will still be with the bank after the deal is closed. Bremer declined further comment.

The Otto Bremer Trust will own 11% of the combined bank. One of the trust’s three trustees will have a board seat for the new bank; all three had seats on Bremer’s board.

Bremer will receive 22% of the sale proceeds in cash and 78% in Old National stock valued at $26.26. Old National’s shares rose 6% on news of the deal Monday.

“The market should applaud this well-priced, low-risk and financially attractive deal,” Christopher McGratty, an analyst at Keefe, Bruyette & Woods, wrote Monday in a report on Old National. Bremer essentially sold for the book value of its equity.

Scott Siefers, a stock analyst at Piper Sandler, wrote that the deal’s “financials look compelling” for Old National shareholders. The expected cost savings and earnings growth for Old National are positives, he noted.

Still, “Bremer has had some highly publicized multi-year issues, begging the question of whether it will need to be fixed before it can be grown.”

Staff writer Tim Harlow contributed to this report.