A little more than a year after becoming Eastern Bank Corp.'s chairman and chief executive officer, Richard E. Holbrook has struck his first big deal for the Boston company.
The $6.8 billion-asset Eastern, the largest bank or thrift company based in Massachusetts, said late Monday that it is buying Massbank Corp. in Reading for $170 million in cash. The deal would increase Eastern's assets by more than $800 million and more than double its branch network in Middlesex County, the state's largest county.
Though Massbank has been a recent target of scathing criticism — and even a lawsuit — by an activist investor, Mr. Holbrook had nothing but praise for the company, its management, and its staff.
"We think we're getting some great people and access to a fabulous customer base," he said Tuesday in an interview. "The opportunity to build out our franchise is perfect."
Eastern, a mutual thrift company, agreed to pay $40 a share, a 5.3% premium over Monday's closing price.
Massbank's stock rose 2.2% Tuesday, to $38.82.
No analysts cover either company, but those familiar with the New England market said Eastern is getting a good deal.
The price works out to roughly 155% of Massbank's tangible book value, 22.5 times its earnings for the last 12 months, and an 8.9% deposit premium, according to Damon DelMonte, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. Those metrics are lower than for comparable deals, but the fact that securities make up the bulk of Massbank's assets likely was a factor in the pricing, Mr. DelMonte said.
"It's called a bank, but it only has 27% of its assets in loans," he said.
Still, Massbank is rich in deposits, and Mr. DelMonte said Eastern could capitalize on those deposits to make more loans.
Eastern is "not getting a great loan book, but Eastern is a strong lender," he said.
Massbank's heavy reliance on securities is one issue that sparked criticism from the activist investor Lawrence B. Seidman. Several letters he wrote to the company attacked Gerard H. Brandi, its chairman, president, and CEO, as lazy and questioned whether he played video games all day instead of making loans. Mr. Seidman had suggested that the company change its management or sell itself.
In his suit against Massbank, he said it changed improperly its bylaws to make his slate of directors ineligible after he gave notice that he intended to launch a proxy fight for board seats this year.
Mr. Seidman would not discuss the deal with Eastern, citing pending litigation.
Mr. Holbrook said he has nothing but respect for Mr. Brandi, who would become Eastern's vice chairman.
"I've known Gerry Brandi a long time and long admired the way he has inspired and led his people," Mr. Holbrook said.
Neither Mr. Holbrook nor Mr. Brandi would give details about how the deal came about, saying that would be revealed in a Securities and Exchange Commission filing.
But Mr. Brandi said his company decided to sell now "because Eastern was interested at this point in time."
He would not answer any questions about Mr. Seidman, also citing the pending litigation.
The deal, expected to close in the second half, would roughly double Eastern's deposits in Middlesex County, giving it the No. 7 market share there, with 4.2% of deposits. Eastern currently ranks 11th in the county, according to the Federal Deposit Insurance Corp.
Massbank would be Eastern's third acquisition in three years and its second since Mr. Holbrook became its chairman and CEO at the start of last year. Eastern acquired the $68 million-asset Sharon Co-operative Bank in Sharon last year and the $1.5 billion-asset Plymouth Bancorp Inc. in Middleboro in 2005. Both were mutual thrifts.
Mr. Holbrook said Eastern would continue to look for acquisitions but likely would wait until after closing the Massbank deal to buy again.
"I think that scale is very important in this business," Mr. Holbrook said. "We continue to feel as if we can be a partner for both stock and mutual companies in our market and in contiguous markets. We are continuing to talk with a number of potential mutual partners, not necessarily about partnering right away, but in some cases potentially in the near term."
