Dime and Hudson United To Merge in $3.6B Deal

Underscoring a trend in which thrifts are merging with commercial banks, Dime Bancorp, the largest thrift in New York, said Wednesday that it would merge with Hudson United Bancorp, a bank holding company in Mahwah, N.J.

The deal is valued at $3.6 billion.

The merger would create a bank holding company that would own both a commercial bank, Dime United, and a thrift. The holding company would be known as Dime United Bancorp.

To operate as a banking company rather than as a thrift, technically the $9.7 billion-asset Hudson United is buying the $23 billion-asset Dime. But no premium is being paid in the exchange of stock, and Dime's chairman and chief executive officer, Lawrence J. Toal, would continue as the merged company's CEO. Dime's shareholders would own 56% of the combined company.

Kenneth T. Nielson, 51, chairman, president and chief executive officer of Hudson United, would succeed Mr. Toal as chairman and chief executive on Jan. 1, 2003. The board of directors for the new entity would be made up of 13 current Dime directors and 12 from Hudson.

The new entity would have more than $32 billion of assets, $22 billion of deposits and a 5.2% share of the regional market. It would operate more than 330 branches in New York, New Jersey, Connecticut, and Pennsylvania.

Most thrifts are seeking balance sheets that are similar to banks', said Kevin T. Timmons, a bank analyst at First Albany Corp. Traditional thrift-like products, such as savings accounts and mortgage banking, are low-margin businesses, said Mr. Timmons, and mortgage banking is particularly vulnerable to rising interest rates.

Mr. Toal said he expects the merged company's earnings to rise. He predicted that its return on assets would increase to more than 1.5%, from a pro forma 1.35%; its return on equity would rise above the present 20%; and its net interest margin would rise to more than 4%, from 3.38%.

The merger is expected to be completed in the first quarter of 2000, when the company would take a after-tax charge of $94 million. It is expected that the new company would realize $78 million in cost savings, most of which would come from the staff cuts.

"The market believes that the combined entity will expand its price/earnings ratio on a stronger earnings stream," said Chad Yonker, a thrift analyst at Fox-Pitt Kelton, New York. "This franchise is more valuable than either of the companies were by themselves. And if by chance it does not succeed it will make a good takeover target."

Mr. Timmons also said the proposed combination looks positive, but said some Dime investors were disappointed by the deal.

"Some portion of Dime's investors hoped there would be an outright sale of the company," said Mr. Timmons. "This deal puts any chance of takeover off for at least a year."

The deal suggests that the sluggish merger activity in the thrift industry may be over.

"If people were not talking before, they are talking now," said Salvatore J. DiMartino, a bank analyst at Advest Inc. in New York. "Whenever two large players do a major acquisition like this it upsets the balance of power, and mid-tier players start rethinking their strategies."

The new entity would be the fifth-largest regional bank in the Middle Atlantic states. In assets it would rank just above Summit Bancorp of Princeton, N.J., which has a 5.1% share of the regional market, and just below HSBC Holdings' 5.6% share.

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