Just a day after its name was first floated as a possible white knight for Dime Bancorp, M&T Bank Corp. dropped out of the undeclared bidding war, opting instead to buy Pennsylvania-based Keystone Financial for $1 billion.
M&T of Buffalo said on Wednesday that it would acquire Keystone Financial Inc. of Harrisburg, Pa., in a stock-and-cash deal valued at more than $1 billion.
Analysts had listed M&T among potential dark horse bidders for Dime Bancorp, which is seeking to thwart a hostile offer from North Fork Bancorp. But M&T said that the deal for $7 billion-asset Keystone, its largest to date, would take it out of the acquisition market for the time being.
"This will keep us very busy and keep us from doing anything else of size for more than 12 months," said Robert G. Wilmers, president and chief executive.
The $22.8 billion-asset bank holding company, which ranks No. 1 in market share in upstate New York, would become the fifth-largest bank in Pennsylvania upon completion of the deal, which is slated for November. It would be the leading bank by deposit share in central Pennsylvania, with 9% of deposits, and the combined company would have assets of $29.8 billion and 450 branches in four states including Maryland and West Virginia. Because there is little overlap in the two companies' markets, branch consolidation is unlikely.
While the deal would broaden M&T's geographic reach, Keystone's markets - which are generally in rural areas - are very similar to M&T's. "This franchise is very consistent with the one we created in upstate New York," Mr. Wilmers said.
Keystone has struggled to grow. Its first-quarter net income was $19.9 million, or 41 cents a share, compared with $21.1 million, or 42 cents a share, in the year-earlier period.
The company's performance was hurt by rising interest rates, said Carl L. Campbell, Keystone's chairman and CEO. Originations and sales of fixed-rate mortgages also were dealt a blow, which meant lower mortgage banking revenue.
Last year Keystone put seven bank charters in three states under one name in an effort to cut back on costs, but that move failed to spark profit growth and put more pressure on the company to find a partner, said Collyn Bement Gilbert, an analyst at Ferris, Baker Watts Inc.
"When a company stumbles the number of times Keystone has, a partnership was inevitable," Mr. Gilbert said.
Denis Laplante, an analyst with Fox-Pitt, Kelton Inc. in New York, said Keystone's markets may not be the fastest-growing in the country, but it is a "clean company" and has never had credit-quality issues. "Its problems are their expansion strategy and revenue growth," he said.
In conjunction with the merger, M&T intends to declare a 10-for-1 split of its common stock, which closed Wednesday at $400.9375.
Each Keystone share would be worth half of a post-split share of M&T. Keystone shareholders would be allowed to choose between cash and stock, but 65% of the approximately 49 million outstanding shares would have to be exchanged for M&T stock.
Mr. Wilmers would continue as president and CEO, while Mr. Campbell would become vice chairman.
The Keystone deal is in line with a pair of acquisitions of failed thrifts by M&T in the early 1990s, when it bought Onbancorp and Goldome at discount from the government. Like Keystone, those companies had roughly one-third the amount of M&T's deposits.
M&T insiders would own 20% of the new company. In a conference call with investors and analysts, Mr. Wilmers remarked that, with "$800 million of our own money at stake, you can bet we think this transaction makes sense." He added, "We did this as owners not agents."
The transaction has been approved by the boards of both companies. The deal is slated to close in the fourth quarter.
Keystone also said Wednesday it had suspended its annual shareholder meeting, which was scheduled for May 25th, indefinitely.