Shrugging off Monday's stock market rout, First Empire State Corp. announced plans Tuesday to acquire Onbancorp in a stock-and-cash transaction valued at $872 million.
The deal, slated to close in the first quarter, would create the largest banking company in upstate New York in terms of deposits, which would total $15.2 billion. Assets would jump to $19.2 billion, lifting First Empire 12 notches to become the 40th-largest banking company in the United States, with 236 branches in New York State and 19 in Pennsylvania.
First Empire executives said the transaction could give the Buffalo- based banking company the heft to compete against giants like Marine Midland and KeyCorp.
"This is a market-expansion transaction that will allow us to be a much more powerful marketing company," said Gary S. Paul, senior vice president and corporate finance chief at First Empire.
The deal followed Monday's stock market rout, suggesting that market gyrations are not going to stop the bank-merger juggernaut. (See related story on page 24.)
"The consolidation wave is separate and distinct" from the general market for financial stocks, said Frank J. Barkocy, an analyst with Josephthal Lyon & Ross.
"We might not see the same exalted premiums, but the die is cast for continued consolidation," Mr. Barkocy said.
The agreement between the banks was finalized with handshakes among executives last Thursday. The proposal was then presented on Monday to both banks' boards before being publicly announced Tuesday afternoon. Wall Street caught wind of an imminent deal early Tuesday afternoon, and trading in both stocks was halted pending the announcement.
Under terms of the deal, shareholders of Syracuse-based Onbancorp have the option of receiving 0.161 of a share of First Empire common stock, or $69.50 in cash for each of their shares.
Onbancorp had been under pressure for the past couple of years to find an acquirer, but rather than act, the bank moved to beef up operations and make itself more appealing. The effort "allowed them to put together a good fundamental performance and gave them time to see what would be a good fit," Mr. Barkocy said.
Seymour Holtzman, Wilkes-Barre, Pa., one of Onbancorp's largest individual shareholders and a critic of its directors, said he was "delighted" by the merger announcement.
"The board appears to have acted responsibly to enhance shareholder value," Mr. Holtzman said in a prepared statement. "The strategic alliance should benefit employees, management, and shareholders."
Mr. Holtzman added that he hoped litigation between himself and Onbancorp could be settled.
Mr. Paul said First Empire can expand its small-business lending and investment product sales through Onbancorp branches. Onbancorp's banking subsidiary would be merged into Manufacturers and Traders Trust Company, First Empire's principal commercial banking subsidiary.
Robert G. Wilmers would continue as president and chief executive officer of First Empire and chairman and chief executive officer of M&T Bank. Robert J. Bennett, now chairman and president of Onbancorp, would be chairman of the holding company and vice chairman of M&T Bank.
First Empire has the managerial savvy to make the consolidation work, industry observers said. "They're a solid operation that could integrate an acquisition pretty effectively," said Thomas Ferguson, banking analyst in the equity group at Standard & Poor's Corp., New York.