Shares of M&T Bank Corporation (MTB: Charts, News) rallied yesterday after the Buffalo, New York-based bank announced that it would acquire ailing regional peer Hudson City Bancorp (HCBK: Charts, News), based in Paramus, New Jersey, for a $3.7 billion stock and cash transaction. Hudson City’s stock, which has slid over 40% since the beginning of 2011, rallied 16% on the news, while M&T rallied nearly 5%. M&T will pay 60% in stock and 40% in cash to acquire Hudson City. M&T chairman touted the strength of the merger, stating, “M&T, which was established in 1856, and Hudson City, founded in 1868, have been serving their customers and communities for generations, and we look forward to building on that long history and tradition together in the future.”
M&T will take over Hudson’s 135 offices, located in New Jersey, New York state, and Connecticut. M&T is a much larger institution, with 870 branches across Connecticut and Virginia. Hudson’s branches will help M&T expand into new regions with little overlap. The deal is expected to be immediately accretive to M&T in earnings, revenue and book value per share. M&T will gain $25 billion in deposits and $28 billion in loans from Hudson, which will give the bank the fourth largest deposit base in New Jersey. M&T currently has $80.8 billion in assets, while Hudson City has $43.6 billion. M&T will also pay $13 billion on Hudson’s long-term borrowings by liquidating Hudson’s investment portfolio. Hudson City’s remaining assets of deposits and mortgages also complements M&T wealth management and corporate trust solutions.
Although some Hudson investors expressed disappointment with CEO Ronald Hermance, Jr.’s decision to sell the bank, which was valued at nearly $20 per share prior to the 2009 crash, Hermance remained upbeat concerning the bank’s growth prospects. “This merger creates tremendous opportunities to build on the successes that each company has achieved individually in its own markets,” he stated. “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.” Hermance will join the board of directors at M&T. The merger has been approved by the board of directors of both banks.
Over the past two years, low interest rates have caused net interest margins to shrink and sink the profitability of banks, both national and regional, across the market. Analysts see M&T’s acquisition of Hudson City as an inevitable strategic move to stay afloat with more deposits and loans.
Shares of M&T trade at 12 times forward earnings with a 5-year PEG ratio of 1.5. The stock pays a quarterly dividend of 70 cents per share – a 3.1% yield at current prices. This is a slight drop from the 8 cents per share, a yield of 4.3%, that Hudson City pays. However, M&T’s stock looks more stable than Hudson City’s, which trades at 14 times forward earnings with a negative 5-year PEG ratio of -3.7.
Other News About MTB
Hudson City Bancorp Inc To Merge With M&T Bank Corporation
Hudson City gets bought out for $3.7 Billion
M&T Bank Opens Wallet For Hudson City Bancorp
M&T strengthens its deposits and loans to offset shrinking net interest margins.
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