Berkshire Hills Bancorp Inc. in Pittsfield, Mass., has agreed to buy hometown rival Legacy Bancorp for $108 million.
The $2.8 billion-asset Berkshire Hills would get the $1 billion-asset Legacy for 1.1 times tangible book value, or about $13 per share. The companies said late Tuesday that the deal would make them more efficient and provide a more commanding market share in western Massachusetts and northeastern New York.
"This in-market combination will create a strong platform headquartered in Berkshire County for further growth of our Northeast regional franchise," Michael Daly, Berkshire's president and chief executive, said in a press release.
By terms of the agreement, each share of Legacy common stock would be exchanged for 0.564 share of Berkshire stock, plus $1.30 in cash. As a result, 90% of the merger consideration would be in the form of Berkshire stock and 10% would be in cash.
The boards of directors of both companies have unanimously approved the deal, which is expected to close in the second quarter.
Analysts had speculated for some time about a possible combination of the companies, whose headquarters are across the street from one another.
Legacy has struggled with credit-quality issues and has not turned a profit since September 2008.
It has more than tripled its provision for loan losses since the beginning of the year and has charged off $10 million of problem loans, compared to chargeoffs of $436,000 for all of 2009.
Legacy Bancorp Chairman and Chief Executive J. Williar Dunlaevy said the transaction would produce an immediate, attractive return for Legacy shareholders.
Patrick J. Sullivan, the company's president, said compelling business reasons also motivated a partnership.
"Berkshire is a company with strong momentum and is well positioned as a bank that knows our communities, understands the customers we serve and offers a unique brand promise for customer engagement," Sullivan said in a press release.
This is the second deal for Berkshire in as many months. It said in October it would acquire the $331.7 million-asset Rome Bancorp Inc. in Rome, N.Y., for $74 million. That deal is expected to close in the first quarter.
Upon completing both deals, the post-merger company would have more than $4 billion of assets and 60 branches in Berkshire County, the Pioneer Valley of New York and southern Vermont.
Because the two companies serve the same market, Daly said on a conference call Wednesday, Berkshire probably would have to divest about $200 million of deposits in Berkshire County.
The company said the combined institution would also be well-capitalized and have a market capitalization exceeding $400 million and a dividend yield exceeding 3% based on current stock prices. Daly said the deal would be immediately accretive to core earnings per share. In 2012, the first full year of operations, the deal is expected to be 10 cents accretive to Berkshire's core earnings.