M&A imperative: Get regulators on board or no deal

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Astoria Financial, stung when its proposed sale to New York Community Bancorp failed to gain regulatory approval, was determined to avoid a repeat.

After the deal collapsed Jan. 1 and new suitors began lining up, Astoria made it clear that prospective buyers needed to show how they would be able to gain regulatory approval and offer a “specific timeline for doing so,” according to a recent filing tied to the Lake Success, N.Y., company’s pending sale to Sterling Financial in Montebello.

The $14.6 billion-asset Astoria also required potential buyers to provide detailed presentations to all relevant regulators — with its own legal counsel present.

Sterling was the only suitor to quickly comply. In doing so, the $14.7 billion-asset company was able to reach an agreement in March to buy Astoria for $2.2 billion.

Astoria’s preconditions could prove instructive for other potential sellers nervous about buyers’ ability to secure regulatory approval.

The filing noted that Astoria was contacted by three banks, including Sterling, within days of the termination of the New York Community deal. Astoria’s management had discussions with each bank regarding its status with regulators.

One of the unnamed banks backed off in early February for unknown reasons.

Sterling “promptly scheduled and held meetings with its banking regulators” before offering Astoria a deal on Feb. 15 valued at $21.02 per share. Sterling said it was prepared to “expeditiously negotiate” a deal with plans to announce a merger by mid-March.

Sterling also included a presentation “laying out the proposed transaction, its benefits to the companies’ stockholders, customers and employees and a due diligence and integration plan,” the filing said.

Though the other bank still in the running proposed a merger valued at $21.11 to $23.03 a share, it failed to include a specific time frame for finalizing a deal. The unnamed institution’s letter also did not include a timeline for meeting with regulators.

Astoria on multiple occasions pressed the unnamed bank to schedule an in-person meeting with its regulators.

Jack Kopnisky, Sterling’s CEO, met with Astoria’s board on Feb. 27 and shared his strategic vision for a proposed merger. He also answered questions about Sterling’s product lines and capital position. During the meeting, Astoria’s directors “emphasized … the importance of Sterling presenting its highest indicative value” since other parties were interested in a deal.

After Kopnisky left the meeting, Astoria’s board decided to sign an exclusivity agreement with Sterling, noting that the other bank had not yet committed to meet with its regulators.

The unnamed bank sent a letter to Astoria shortly afterward stating that it had scheduled a March 29 meeting with its regulators. But it was too late — Sterling and Astoria had agreed to exclusive negotiations on Feb. 28.

Sterling, meanwhile, raised its offer to $21.83 a share, and said that it had completed due diligence and was interested in “immediately proceeding toward finalizing and announcing a definitive transaction.”

Directors at Sterling and Astoria approved the proposed merger following meetings on March 6. The deal was announced the next day.

The deal, which is expected to close in the fourth quarter, is the biggest in banking this year. The agreement prices Astoria at 159% of tangible book.

Sterling expects the deal to be 12% accretive to its tangible book value per share. The company, which plans to cut about $100 million of Astoria’s annual noninterest expenses, also expects the acquisition to be 9% accretive to 2018 earnings per share, excluding restructuring charges.

Each company will hold special shareholder meetings on June 13 to vote on the transaction.

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