Signaling that banking industry M&As may be heating up, as well as highlighting the challenges to growth that many mid-sized and community banks face in the current business environment, Hudson City Bancorp, Inc. (Paramus, N.J.), and Buffalo, N.Y.-based M&T Bank Corp. have announced they are entering into a definitive agreement under which Hudson City, the largest thrift institution headquartered in New Jersey, will merge into a subsidiary of M&T.
"This merger creates tremendous opportunities to build on the successes that each company has achieved individually in its own markets," said Hudson City Chairman and CEO, Ronald E. Hermance, Jr., in a press release announcing the $3.7 billion deal. "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."
M&T, with $80.8 billion in assets, will acquire $43.6 billion-asset Hudson City's network of 135 branch offices, which are located in New Jersey (97 branches), downstate New York (29 branches) and Fairfield County, Connecticut (9 branches). M&T's existing branch network is adjacent to Hudson City's franchise, with very little overlap, according to the companies. The combined network of 870 branches will stretch from Connecticut to Virginia.
M&T said it expects to gain approximately $25 billion in deposits and $28 billion in loans from the merger (before acquisition accounting adjustments), giving M&T the fourth-largest deposit share in New Jersey. "To the customers and communities now served by Hudson City, M&T brings a wider array of banking products and services," said Robert G. Wilmers, M&T Chairman and CEO, in the announcement. "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."
Under terms of the agreement, each Hudson City share will receive consideration valued at 0.08403 of an M&T share in the form of either M&T stock or cash, based upon the election of each Hudson City shareholder, subject to proration as specified in the merger agreement (which provides for an aggregate split of total consideration of 60% common stock of M&T and 40 percent cash). Based on the closing price of M&T stock on August 24, 2012, the transaction is valued at approximately $3.7 billion. 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. After the merger is completed, M&T expects to repay approximately $13 billion of Hudson City's long-term borrowings by liquidating its comparably sized investment portfolio. M&T's pro forma balance sheet will have then increased by approximately $28 billion.
The merger has been approved by the boards of directors of each company, and is subject to certain conditions, including regulatory approvals and approval by M&T's and Hudson City's common shareholders. After the transaction is completed, Hermance will be appointed to the boards of directors of M&T and its principal banking subsidiary, M&T Bank.