The long-awaited decision by People's Bank to demutualize and become a fully public company in 2007 could raise an estimated $2.6 billion that's earmarked, say analysts, for acquisitions. The S-1 document, which details the appraisal and exchange-ratio rate, will be released in the first quarter of 2007, according to a bank spokeswoman.
The deal to convert the Bridgeport, CT, from a mutual holding company would be one of the largest IPOs in U.S. history, making it No. 8 in U.S. financial services IPOs and No. 17 for all U.S. IPOs, says Laurie Hunsicker, an analyst for Friedman, Billings, Ramsey & Co. "They outgrew the MHC structure," she says, noting that the bank probably is seeking to widen its footprint, which soon will include New York state. "And they've probably been frustrated in their inability to do an acquisition. It's frequently hard for a mutual fund holding company to be successful in pursuing acquisitions when they're going up against public banks."
Founded in 1842 in Fairfield County, the bank operates through some 200 branches, mostly in eastern Connecticut, including supermarket branches, commercial-banking offices and trust offices. About half of its branches are in Super Stop & Shop stores. In July 1988, the bank converted to stock ownership via an MHC first-step reorganization, creating People's Mutual Holdings, which now owns 58 percent of the shares of the $11 billion-asset bank. Public shareholders hold the remaining 42 percent.
With the extra cash, Hunsicker predicts People's will seek acquisitions, readdress its dividends and do stock buybacks after the year-long post-IPO prohibition lifts. Most post-IPO banks eventually buy back between 15 percent and 20 percent of their stock, she says, which she calls "a great use of capital."
Demutualization is becoming increasingly popular, according to Hunsicker, who counts at least 600 conversions since 1990. Being fully public also helps banks provide more management perks and attract employees. "It's difficult to convince a CEO to accept the currency [of a MHC]," says Hunsicker. "It's confusing. It's a structure that many aren't necessarily comfortable with." She declined to speculate which banks were potential targets for People's.
People's Bank declined to provide an estimate of the offering, which requires approval from shareholders, depositors and the Office of Thrift Supervision. All are expected in the first quarter. However, Hunsicker estimates the IPO share value would be $10, which is 125 percent of book value, 129 percent of tangible book value and 24 times pro forma earnings per share.
People's has been prettying itself up for public sale over the past few years, boosting fundamentals like earnings. In February 2004, it said it would sell its credit-card business, including the transfer of its related Bridgeport operations, to Royal Bank of Scotland Group; at year-end 2003, the credit-card portfolio totaled $2.3 billion. In June 2005, it announced plans to sell three Norwich-area branches, with deposits totaling $63 million, to Putnam Savings Bank. In August, it replaced its state charter with a federal one, paving the way for its previously announced plans to open 15 branches in Westchester County, NY, before 2009. In September, it announced it had sold $835 million of remaining securities, and would use the funds to pay off short-term loans and reinvest the balance in short-term securities.
The plan also provides for the creation of a employee stock-ownership plan and a People's Community Foundation, to be funded with stock or cash from the conversion, as long as depositors and shareholders agree.
Would People's succumb to an offer itself? Well, it would have to wait three years after its conversion to a fully public entity to legally entertain such ideas.
