Cape Savings Bank would nearly double its size with its deal for Boardwalk Bancorp Inc., creating a company with more than $1 billion of assets and 20 branches in a growing market that includes Atlantic City.
The combined outfit also would likely be more attractive to potential suitors in a few years, according to Boardwalk's chief executive.
The $613 million-asset Cape Savings, a mutual thrift in Cape May Court House, N.J., announced late Thursday that it is going public and simultaneously buying Boardwalk for $101 million in cash and stock.
Michael D. Devlin, the chairman, president, and chief executive of the $454 million-asset Boardwalk, in Linwood, N.J., said, "We think we are creating the preeminent bank franchise in this part of the state."
For Boardwalk shareholders, the deal is "a good value today," and "I think it's going to be a good value three to five years from now too," Mr. Devlin said in an interview Friday.
Cape Savings agreed to pay $23 a share for Boardwalk. The price is a 27% premium over the closing price for Boardwalk's stock Thursday. The shares shot up nearly 20% by Friday afternoon, to $21.70.
Bret Ginesky of Stifel, Nicolaus & Co. Inc. said the companies are a "good fit," because both have branches in Cape May and Atlantic counties with little overlap. "I think it's a great deal all around," he said.
Mr. Ginesky, the only analyst who follows Boardwalk, said the price works out to two times the seller's tangible book value, which is in line with similar deals for banks of its size. (Stifel Nicolaus advised Cape Savings on the deal.)
Boardwalk's stock had been trading as low as $16.25 in June, so shareholders should be pleased with the price, Mr. Ginesky said.
"They got a good price right now, and depending on the valuation of Cape Savings in the conversion, it could be an additional boon for shareholders if they take the stock."
Mike Shafir, an analyst at Sterne, Agee & Leach Inc. who tracks conversions, said several newly trading stocks have not done so well in the past few months, partly because the bank sector is out of favor with investors.
But this deal offers "significant upside opportunity" for Boardwalk shareholders and Cape Savings depositors, Mr. Shafir said. "We think this is a pretty creative and intelligent structure," he said.
Even if Cape Savings does not get the initial pop in its stock price that has made conversions so attractive to investors in previous years, he said, "we believe over the next several years this institution will trade at the kind of premiums we have seen historically."
Besides that, Mr. Shafir said, "you have a huge double-dip opportunity for the Boardwalk shareholders over the next three to five years" if Cape Savings chooses to sell itself.
Boardwalk's Mr. Devlin, who would join Cape Savings as the chief operating officer and a board member, said he helped start Boardwalk eight years ago with the idea that it would sell in a decade. But it decided to sell earlier than planned after several potential buyers approached it this year.
Cape Savings' offer seemed too good to pass up, Mr. Devlin said. "I always admired the company," he said. "You don't often find mutual savings banks that are well disciplined. They've had solid performance for a number of years."
Cape Savings earned $5 million last year and its 0.84% return on assets was in line with that of other thrifts with $500 million to $1 billion of assets, according to Federal Deposit Insurance Corp. data.
Mr. Devlin said the conversion added to his company's motivation to sell, particularly since Cape Savings is not going the mutual holding company route, but becoming fully public. That means the regulatory moratorium on a future sale would expire in three years.
Herbert L. Hornsby Jr., the president and CEO of Cape Savings, said he could not discuss its plans because of the proposed stock offering.
The conversion, offering, and merger are expected to be completed at the same time in the first quarter of 2008. Cape Savings is organizing a parent company to be called Cape Bancorp Inc. to facilitate the transactions.
