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The Paramus, N.J., thrift decided to sell itself to M&T for a relatively low price rather than keep trying to overcome its reliance on low interest rates. That was bad news for the countless small banks attempting similar reboots.
August 27 -
Stiffer oversight of banks with assets of $50 billion or more will keep New York Community Bancorp, of Westbury, N.Y., out of the M&A game until a major acquisition comes along, CEO Joseph Ficalora says.
July 31 -
TD is investing in a massive brick-and-mortar expansion even as its U.S. competitors increasingly question the future of the traditional storefront.
April 5
Does anyone have the brass to try to outbid Robert Wilmers for Hudson City?
Hostile bids for banks are rare, and the chairman and chief executive of M&T Bank (MTB) is one of the industry's elder statesmen. But the sweetheart terms Wilmers secured for Hudson City Bancorp (HCBK) have market watchers speculating about dark-horse offers.
"It is always possible for something like that to happen," says Marty Mosby, an analyst with Guggenheim Partners who covers M&T.
M&T, based in Buffalo,
Hudson City, despite its deep interest rate woes, has $44 billion of assets and is well positioned in several affluent markets. The bank M&A market is short on sizable takeover targets.
Those attributes could stir the competitive interest of two able buyers in particular, experts say: Toronto-Dominion Bank (TD) and New York Community Bancorp (NYB). They each have the financial heft and strategic incentive to make the numbers work.
Toronto-Dominion is the most credible threat to M&T, as it is a larger institution and has more valuable shares, Mosby says.
"That would be the one that could potentially come in and ripple it a little bit," he says.
However, a rival bid would be difficult. There would be deep reputational and financial risks in squaring off with Wilmers, one the industry's most respected operators. Scuttling a rival's deal after the papers are signed is a banking taboo that can spook executives at other banks you might want to buy.
Toronto-Dominion CEO
Takeover spats in banking are rare but not unprecedented.
M&T is less vulnerable than Umpqua was for several reasons, experts say.
For one, this is a very large, high-stakes deal. The $120 million breakup fee that M&T would receive should Hudson City fetch a better offer is worth twice as much as the $58 million in cash that PacWest paid for American Perspective. PacWest also paid cash to scuttle Umpqua's bid, which is important.
M&T is covering $2.2 billion — or 60% — of the purchase price of Hudson City with it its own shares, which are among the most valuable in banking. They trade at an exceptionally high multiple to book, and M&T has maintained a dividend through the downturn. Hermance — a reluctant seller — was adamant about pursuing a stock-based deal that would enable shareholders to reap the financial rewards of a merger.
The deal pointedly lacks a so-called cap or collar that would allow M&T to cancel the transaction should its share price surge in value before the deal's scheduled completion in the second quarter. The deal got a bit sweeter for Hudson City shareholders when M&T's shares surged 5% Monday, the day it was announced. If M&T's stock keeps rising, the deal gets even better for them.
M&T's shared closed Wednesday at $88.52, an increase of 10 cents.
"It's a fixed exchange ratio and that is very purposely done because any benefit to our stock accrues to them, too," says Michael Pinto, vice chairman of M&T and CEO of its Mid-Atlantic division. "Our stocks will move in lockstep toward the closing. If it is a good deal, our stock goes up, as it did at announcement, and so did theirs. In that respect, it is truly a partnership."
He declined to comment on the prospect of rival bids. New York Community, Toronto-Dominion and Hudson City either declined to comment or did not return calls seeking comment.
If New York Community or Toronto-Dominion wanted to handily trump M&T's bid, each would have to come in way over the top of M&T with an all-cash, or cash-heavy, offer, according to experts.
This is because the definition of shareholder value becomes fungible in stock-based deals. The people who own the selling bank are not cashing out but swapping their interest into another institution. So it is a matter of debate whether Toronto-Dominion or New York Community would be a better partner for Hudson City than M&T, but it is hard for sellers to argue with cash.
Yet raising and spending cash present challenges to buyers. When you raise it by selling stock in a depressed market, you are diluting shareholders. When you spend cash on hand you are diluting your tangible capital, which nobody wants to do before regulators make a firm decision on exactly how much extra loss-absorbing capital banks will have to maintain.
Though Hudson City says it did not fish for a better offer, there is a strong case that this deal is a long-term financial win for its shareholders. They will own an estimated 20% stake in M&T, which intends to build out Hudson City's business banking operations while cleaning up its interest rate problems.
