A New York State thrift's plan to buy almost $500 million of deposits would dilute its tangible book value by 97%, a bank analyst said.
MSB Bancorp in upstate Goshen has a deal to buy eight branches in the region from San Francisco's First Nationwide Bank.
But the purchase would chop the thrift's tangible book value, now $25.08, to about 80 cents a share, said Kevin Timmons, a bank analyst at First Albany Corp.
MSB's stock was trading at $25.375 when the deal was announced Oct. 2, but has since dropped to about $20 per share.
The $465 million-asset thrift has announced plans to issue almost 1.7 million shares to raise capital. But Mr. Timmons estimated that this would push book value up to only about $12 per share, half the current level.
"I've never seen a deal where the dilution was quite this extensive," he said.
William C. Myers, the thrift's chairman and chief executive, said that its officials haven't calculated book value dilution, but that the deal will be "substantially accretive" to earnings per share.
He said he would not discuss the deal further until after the November release of the prospectus for the stock offering.
MSB has agreed to pay an 8% premium for the First Nationwide branches and deposits, which would increase its deposits to $861 million. The deal, contingent upon regulatory approval and the completion of the offering, is expected to close during the first quarter of 1996.
But as a result of the $39 million in goodwill associated with the transaction, tangible capital would probably drop to about $1 million, Mr. Timmons said.
"You have to wonder if this transaction was worth doing, in light of the premium ... and the amount of dilution they're asking shareholders to incur," said Salvatore DiMartino, an analyst at Advest Inc.
"I have my doubts as to how well they're going to be able to absorb it."
Thrift officials expect the offering to net $37.2 million, resulting in a tangible capital ratio of 4.8% if they sell one of the branches, according to a preliminary prospectus. That implies an offering price of $22 per share.
But Mr. Timmons said market observers are uncertain if the offering can be brought to market at the current stock price.
"From a franchise perspective, it is a good deal," Mr. Timmons said. But "that must be weighed against the dilution."
