M&T Bank Corporation (NYSE:MTB) inked a deal to acquire Hudson City Bancorp, Inc. (NASDAQ:HCBK) for approximately $3.7 billion, to expand its community banking franchise on the east coast of the United States.
Based on the merger agreement, Hudson City Bancorp, Inc. (NASDAQ:HCBK) will be paid 16 percent premium of the bank’s closing stock price of $6.44 per share on Friday, or 0.08403 of M&T Bank Corporation (NYSE:MTB)’s shares. Payment shall be 60 percent stock and 40 percent cash.
According to the press statement of the banks, the transaction is expected to be immediately accretive to the combined company’s capital ratios, capital generation, and tangible book value per share, as well as its GAAP and operating earnings per share.
M&T Bank Corporation (NYSE:MTB) is also expected to pay approximately $13 billion of Hudson City Bancorp’s debts by liquidating its investment portfolio. Hudson City Bancorp’s chairman and chief executive officer Ronald Hermace, Jr. will sit in the board of directors of M&T after the closing of the merger.
Hermance believes the merger will create great opportunities for building on the success that each bank has achieved in their own markets. He said, “Hudson City recently embarked on a diversification of our product lines and our balance sheet. This transaction accelerates that transformation. As we combine Hudson City’s attractive retail network with M&T’s full service commercial banking suite, our stakeholders will participate in the growth of one of the nation’s strongest and most successful banking franchises.”
On the other hand, Robert Wilmers, chairman and CEO of M&T Bank Corp. recognized the long history of both Hudson City and M&T in serving their customers in the banking industry. He assured the customers and communities served by Hudson City that M&T will bring a wide range of products and services.
In addition, Wilmers said, “As a thrift, Hudson City focused primarily on deposits and mortgages. M&T will build on Hudson City’s loyal customer base to create a comprehensive community banking franchise that provides a full range of checking and savings accounts, debit and credit cards, home equity loans, and other lending options, plus small business and commercial banking services, and our premier wealth management and corporate trust solutions through Wilmington Trust.”
M&T expects to gain approximately $25 billion in deposits and $28 billion in loans in the merger. It will acquire Hudson City Bancorp’s 135 branch offices in New Jersey, 29 branches in New York and Faifield County, as well as its 9 branches in Connecticut.
M&T Bank Corporation (NYSE:MTB) has $80.8 billion in assets, while Hudson City Bancorp has $43.6 billion assets. Headquartered in Buffalo, N.Y., M&T has $80.8 billion in assets. Hudson City, based in Paramus, N.J., currently has $43.6 billion in assets. The transaction was approved by the board of directors of both companies and is subject to regulatory approval.
Oppenheimer likes the deal, they think that M&T is getting a good price on Hudson City. Oppenheimer Equity research states:
M&T enters new market with scale, at a discount.
From M&T’s perspective we view this deal extremely favorably as yet again, they are able to enter a new market with significant scale at an extreme discount. New Jersey had been a gap in M&T’s footprint (among other regional banks), and this provides immediate scale from which M&T will likely overlay a commercial lending platform. The deal is expected to be immediately accretive to EPS, and tangible book value, and will increase tier 1 common to between 8.25%-8.50% from 7.15% currently. The importance of this capital accretion should not be overlooked.