Beneficial Mutual Bancorp's public offering might be nine months away, but investors are already betting it will be a big one.
The Philadelphia thrift company announced Friday that it is buying FMS Financial Corp. in Burlington, N.J., for $183 million and said it would sell a minority stake to the public to fund the acquisition.
Beneficial said it would pay $28 per share for FMS, but eager investors pushed the New Jersey company's stock even higher Friday. It closed at $31.60, up 18%.
Richard D. Weiss, an analyst at Janney Montgomery Scott LLC in Philadelphia, said investors gobbled up FMS stock for the chance to get in on the ground floor of Beneficial's initial public offering.
Though Beneficial is a mutual holding company, it has never sold any of its stock. Investors in the IPO and current FMS shareholders would own 45% of Beneficial after the public offering and acquisition are completed in mid-2007.
"Mutual holding company stocks have been very hot," Mr. Weiss said. "So people are already figuring in that there'll be a pop."
Those involved in the deal say there have been only two cases where a mutual holding company did its first stock offering and an acquisition at the same time.
Beneficial is the parent of the $2.4 billion-asset Beneficial Mutual Savings Bank, which has 39 branches in the Philadelphia area, all but one on the Pennsylvania side of the Delaware River. One branch is in Mount Laurel, N.J.
FMS is the parent of the $1.2 billion-asset Farmers and Mechanics Bank, whose 42 branches are all in New Jersey. Most are in Burlington County, with a handful in Camden and Mercer counties.
Joseph Conners, Beneficial's chief financial officer, said the companies' branch networks are contiguous, making FMS a great match geographically with its buyer. He said Beneficial wanted to expand across the Delaware River into New Jersey because many of its employees and customers live there.
George W. Nise, Beneficial's president and chief executive officer, said the two companies' balance sheets are a "terrific fit."
"They've done well in gathering deposits and we've done a very good job of producing loans," he said.
Mr. Conners said FMS had deposits of about $950 million at midyear, much of that in checking accounts. He said its loan-to-deposit ratio is under 50%, while Beneficial's is over 100%.
Craig W. Yates, the president and chief executive of FMS, is to join Beneficial's board of directors, along with one other FMS board member.
That the merger is happening as Beneficial goes public adds "extra value" for shareholders, Mr. Yates said. "That looked very interesting to us."
But he said he was still surprised FMS' stock rose so much Friday, given that the exact payoff is uncertain and at least nine months away.
Mr. Yates, who will turn 65 in a few months, said he is ready to retire and has spent less time in Burlington since moving to Florida a year and a half ago.
This would be Beneficial's first major acquisition. Last year it bought two Philadelphia companies: the $9.2 million-asset Northwood Savings Bank, which had one branch in the city, and the insurance brokerage Paul Hertel & Co.
Mr. Nise said at the time that he wanted to do more acquisitions in the Philadelphia area, including the New Jersey suburbs. He said Friday that Beneficial would continue to seek buyout opportunities in Pennsylvania and New Jersey.
The price of the FMS deal works out to about 2.47 times the seller's tangible book value and 30 times its trailing 12-month earnings, said David P. Lazar, a managing director at BankAtlantic Bancorp Inc.'s Ryan Beck & Co Inc., which advised FMS on the deal.
