HarborOne Bancorp’s Merger: A Strategic Gamble with a $19M Exit Clause

The proposed merger between Eastern Bankshares, Inc. (NASDAQ: EBC) and HarborOne Bancorp, Inc. (NASDAQ: HONE) has drawn attention not only for its $490 million valuation but also for its steep termination fee of $18.9 million, outlined in an SEC filing. This clause, triggered if the deal collapses under certain conditions, underscores both the strategic ambition of the banks and the risks inherent in consolidating New England’s banking landscape.

A Deal Structured for Scale and Synergy

The merger combines Eastern’s $25 billion in assets with HarborOne’s $5.7 billion, creating a $31 billion financial powerhouse—the largest bank headquartered in Massachusetts. HarborOne shareholders will receive either 0.765 shares of Eastern stock or $12.00 in cash per share, with allocation rules ensuring 75%–85% of shares opt for stock. This structure aims to balance equity dilution and cash outflows, with an 80% stock election projecting 25.2 million new shares issued and $99 million in cash paid.

The transaction is projected to be 16% earnings accretive to Eastern’s EPS and achieve a 2.8-year tangible book value earnback, positioning the merged entity favorably against regional peers. Additionally, the combined bank will expand its footprint into Rhode Island and bolster wealth management services through Eastern’s Cambridge Trust division, which manages $8.4 billion in assets.

The $18.9 Million Termination Fee: A Double-Edged Sword

The termination fee—equivalent to roughly 4% of the deal’s value—is a standard feature in mergers to deter competing bids and ensure commitment. For HarborOne, this fee acts as a penalty if it walks away from the deal without a “superior proposal” or regulatory approval. Conversely, Eastern could face the fee if it withdraws under similar conditions.

While this clause reduces the risk of a bidding war, it also highlights the stakes: if regulatory hurdles or shareholder opposition scupper the deal, HarborOne would forfeit nearly $19 million—a significant hit for a bank with $5.7 billion in assets. Investors should monitor regulatory reviews closely, as delays or rejections could trigger this penalty.

Regulatory and Market Risks Loom Large

The merger requires approvals from federal and state banking regulators, including the Federal Reserve and the Office of the Comptroller of the Currency. will likely reflect regulatory sentiment. Should antitrust concerns arise—given the merged entity’s dominance in Massachusetts—the timeline could slip beyond the anticipated Q4 2025 close.

Equally critical is HarborOne shareholder approval, which is non-binding but influential. HarborOne’s directors and executives have pledged to vote in favor, but retail shareholders may balk at the cash option’s $12.00 per share, which is 13% below Eastern’s April 23 closing price of $15.48. This discount could fuel dissent, particularly if Eastern’s stock weakens further.

Community Commitments: A Hedge Against NIM Headwinds

The merger emphasizes community investment, with a combined $20 million annually allocated to programs like HarborOne’s financial literacy initiative (HarborOne U) and Eastern’s long-standing charitable efforts. This focus on local ties may help offset challenges in the banking sector, such as narrowing net interest margins (NIM) due to rising rates and credit risk.

Notably, all 30 of HarborOne’s branches—including three in Brockton—will remain open, preserving customer access and reducing operational disruption. This contrasts with recent regional bank mergers that shuttered branches, potentially shielding the combined entity from reputational damage.

Conclusion: A High-Reward, High-Risk Play

The Eastern-HarborOne merger offers compelling rewards: scale, geographic expansion, and synergies that could boost returns. The 16% EPS accretion and $31 billion asset base position the merged bank to compete more effectively in a consolidating industry. However, the $18.9 million termination fee underscores the risks—the penalty could swallow nearly 1.5% of HarborOne’s 2024 net income ($1.3 billion).

Investors should weigh the likelihood of regulatory approval and shareholder support against the fee’s impact. If the deal clears hurdles, the merged entity could become a New England banking leader with robust community ties. Should it fail, HarborOne’s stock—already down 5% since the deal’s announcement—could face further declines.

For now, the merger reflects a calculated gamble: a bet on consolidation in regional banking, with a hefty exit clause serving as both a deterrent and a warning.

Data sources: SEC filings, company press releases, and market analysis.