Outmaneuvering a trio of rivals, Astoria Financial Corp. has agreed to pay a rich $1.8 billion to buy Long Island Bancorp, in a deal that would vault the thrift company into the top rank of New York's banking market.
The deal was struck after a feverish round of courtship by area rivals, all scrambling for size as a way to control their destinies.
The spirited bidding and hefty premium revealed the urgency with which many banks and thrifts now seem to view the need for expansion through mergers and acquisitions.
Dime Bancorp, GreenPoint Financial Corp., and North Fork Bancorp had all been vying to acquire Long Island Bancorp, based in Melville, N.Y.
The deal would provide some crucial cohesion in the fragmented New York metropolitan banking market and make Astoria second only to Chase Manhattan Corp. in deposit share in a three-county region of 6.9 million people.
In successfully wooing Long Island Bancorp, Astoria Financial chairman George Engelke used a combination of financial incentives and in-market schmoozing. He agreed to pay three times Long Island Bancorp's book value, or 30 times 1997 earnings, and to keep certain top executives, especially chairman John J. Conefry, in key roles.
"This is a low-risk transaction that will create a highly efficient community bank," Mr. Engelke told investors and analysts Friday.
In calling it a "real peach of a deal," he cited the quality of Astoria's $10.5 billion of assets, Long Island Bancorp's $6.1 billion, and a mortgage network that extends into seven states.
The combined institution would have $10 billion of deposits and rank as the second-biggest thrift in New York, behind Dime Bancorp, and the sixth largest nationally.
"This is a very compelling market share transaction," said Mr. Conefry, who is slated to be vice chairman of the combined institution.
Each Long Island Bancorp investor would receive 1.15 shares of Astoria Financial, or $71.04. The combined company would retain the rights to the proceeds of goodwill lawsuits that were filed against the government.
Astoria would take a pretax charge of $104 million to cover expenses that include $26 million for severance payments, and $22 million in investment banking and advisory fees. The combined operation initially plans to close six of its 96 branches and lay off an undisclosed number of managers.
Long Island Bancorp has agreed to pay $60 million to Astoria if the transaction is not completed. In addition, the thrifts granted each other options to buy shares equal to 19.9% of each one's currently outstanding common stock.
Mr. Engelke projected $50 million of annual expense savings, with many of the costs realized within three months of a closing expected late this year. He also said pro forma earning per shares should rise 14% next year and 15% in 2000.
The projections seemed a bit rosy to analysts, given the low-rate environment the thrifts are operating in. "The assumptions about earnings and earnings growth appear optimistic," said Thomas Theurkauf at Keefe, Bruyette & Woods.
Nonetheless Mr. Theurkauf and other analysts applauded the combination for strategic reasons.
"This is a very significant enhancement for Astoria's franchise," said Kevin Timmons, regional banking analyst at First Albany Corp. "By combining the two companies, you're doubling Astoria's market share" to about 10%.
But some institutional shareholders were disappointed, hoping the bidding war would further engorge the share price, which was up more than 60% in the past two months on takeover speculation.'
"It's not as good a price as I would have liked," said one large investor who declined to be named.
The disappointment followed word that North Fork had, on Thurdsay, submitted a new bid worth nearly $74.
Mr. Engleke and Mr. Conefry would not comment on North Fork's counteroffer, choosing to play up the deal at hand.
"This is a well-negotiated transaction," Mr. Engelke said. "Everyone is happy. It works out well."
And while speculation stirred that North Fork could try a hostile takeover, chairman John Kanas downplayed the prospect, noting that North Fork would hold 2.5% of the combined institution's shares. "Our objective is to enrich our shareholders, not other people's," Mr. Kanas said.
Indeed, North Fork stands to make a $35 million profit from the merger, a windfall worth about 20 cents per share.