M&T Bank Corp. (MTB:US) agreed to buy Hudson City Bancorp for about $3.7 billion in the banking industry’s biggest takeover this year as it seeks to expand in New Jersey.
Under terms of the agreement, each Hudson City shareholder will receive 0.08403 of an M&T share in the form of either M&T stock or cash, the companies said today in a statement. The deal values Hudson City about 12 percent higher than the company’s closing price on the Nasdaq Stock Market on Aug. 24.
M&T will gain 135 branches, including 97 in New Jersey, becoming the fourth-largest lender in the state by deposits. The Buffalo, New York-based company will add $25 billion in deposits and $28 billion in loans, according to the statement. The acquisition, which includes branches in New York and Connecticut, is the biggest takeover of a U.S. bank announced in 2012, according to data compiled by Bloomberg.
“It’s a very attractive transaction for M&T right off the bat,” said Joseph Fenech, an analyst at Sandler O’Neill & Partners LP in New York who has a buy rating on M&T’s shares. “If you look up and down the M&T franchise from upstate New York to Virgina, two of the holes were Long Island and New Jersey.”
Hudson City climbed (HCBK:US) 16 percent to close at $7.45 in New York, the most since July 1999, and M&T gained 4.6 percent to $89.82. Paramus, New Jersey-based Hudson City has advanced 19 percent this year and M&T has risen 18 percent, compared with a 20 percent increase in the 24-company KBW Bank Index.
The deal’s breakup fee is 3.25 percent of the merger value, which would be distributed to both lenders, the companies said today on a conference call following the announcement. Hudson City Chief Executive Officer Ron Hermance, 65, said M&T approached his bank about the takeover, and there was “not a bidding process at all,” he said.
Hudson City was developing a plan to hire 230 people over the next few years “and do the kind of things that M&T was doing” when they were sought out by the larger lender, Hermance said on the call. “It wasn’t a competitive process.”
Hermance returned to Hudson City Aug. 1 after taking medical leave in February to receive a bone-marrow transplant.
The takeover of Hudson City creates 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,” M&T CEO Robert G. Wilmers, 78, said in the statement.
The U.S. Treasury Department said earlier this month it priced an offering of the preferred stock it holds in M&T as part of the Troubled Asset Relief Program. As a result, the Treasury will no longer hold any shares of M&T’s preferred stock, though it still holds warrants to purchase about 1.7 million common shares, according to a statement at the time.
Berkshire Hathaway Inc., run by billionaire Warren Buffett, owned 5.4 million shares, or a 4.3 percent stake, as of June 30, according to data compiled by Bloomberg. The Omaha, Nebraska- based firm is M&T’s third-largest shareholder after Wellington Management Co. and State Street Corp.
M&T expanded in 2011, when it bought Wilmington Trust Corp. for more than $400 million to build market share in Delaware and expand wealth management and corporate services to boost fee income. In 2009, M&T bought Provident Bankshares Corp. to add deposits in the mid-Atlantic region.
Hudson City was the largest U.S. bank to forgo a government bailout. The lender took an after-tax charge of $440.7 million last year from the early repayment of $4.3 billion of so-called structured putable borrowings. The company said it was under pressure from regulators to reduce risk.
Denis Salamone, Hudson City’s acting chairman and CEO, said earlier this year that it had become difficult for the bank to profitably expand its residential-lending portfolio amid record- low interest rates and the participation of government-sponsored enterprises in the market. As a result, it began evaluating a “variety of strategies” to adapt, he said.
“Historically, we have kept all of our loans on our balance sheet,” Salamone said in July. “While we will continue to offer loans to keep in our portfolio, we will also begin to offer residential mortgage loans that are eligible for sale in the secondary market.”
Salamone said at the time that the company planned to start making commercial loans to help balance its risks.
Bank of America Corp., Wells Fargo & Co. and Toronto- Dominion Bank (TD) are the largest banks in New Jersey. They all expanded by acquiring other lenders in the state, which is the third-wealthiest in the U.S. by per-capita income, according to data compiled by Bloomberg. Toronto-Dominion, Canada’s second- largest lender, bolstered its presence in New Jersey in 2008 with the purchase of Cherry Hill-based Commerce Bancorp Inc. for more than $7 billion.
JPMorgan Chase & Co. is Hudson City’s banker on the deal, while Sullivan & Cromwell LLP provided legal advice. M&T is using Evercore Partners Inc. and Wachtell, Lipton, Rosen & Katz.
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