After passing on the much pricier European American Bank, North Fork Bancorp unveiled a more digestible acquisition Tuesday, one that would bring the Melville, N.Y., banking company 11 coveted branches in Manhattan.
In a deal valued at $175 million, or $32 a share, North Fork said it would acquire Commercial Bank of New York. The purchase would more than double $15 billion-asset North Fork's presence in Manhattan, where it now has seven branches. In addition, North Fork would get three branches in Queens and Nassau counties. The acquisition, expected to close by July, will give North Fork $1 billion of deposits, is low-risk, and will allow the bank to remain well capitalized, said John A. Kanas, North Fork's chairman and chief executive officer, in a speech Tuesday to analysts.
"This deal brings us two years ahead of schedule," he said, referring to the bank's previous plans to open almost the same number of branches. "I am very excited - North Fork has now more branches here than Bank of New York."
Mr. Kanas had also eyed EAB.
"The bidding got a tad rich," said Jason Goldberg, an equity analyst with Lehman Brothers. But apparently not too rich for behemoth Citigroup, which on Monday announced plans to acquire the bank for $1.6 billion (see story starting on page 1).
"Plus, EAB would have given them another 60 branches on Long Island, which they don't really need," Mr. Goldberg said.
North Fork had reportedly sought to team up with FleetBoston Financial in its bid for EAB, a tag-team approach it also used in its hostile bid for Dime Bancorp last year. But ABN Amro, EAB's Dutch parent, reportedly discouraged such a pairing over concerns that the bank might be left with just one bidder. A Fleet spokesman declined to comment.
The joint $1.9 billion bid for Dime, which caused Dime's merger with Hudson United Bancorp of Mahwah, N.J., to fall apart, eventually unraveled last September.
Never one to shy away from controversy, Mr. Kanas said Tuesday that the bitter wrangling over Dime did have some positive effect. The failed acquisition gave North Fork more name recognition, he told conference attendees. "Nobody asks 'North what?' anymore," he said.
But even after that aborted takeover, Mr. Kanas did not lose sight of his plans to establish a Manhattan branch network.
In what is referred to by some as the Manhattan Project, Mr. Kanas has, in recent years, taken a de novo approach to expanding in the lucrative Manhattan market.
Mr. Kanas said Tuesday that he had planned before the deal to open 12 more branches this year. "We got there today," he said.
Two of the nation's giant banking companies dominate New York City, with J.P. Morgan Chase & Co. controlling about 40% of the market and Citigroup approximately 17%, Lehman's Mr. Goldberg said. But with deposits growing at a faster rate in Manhattan, there is room for competition, he added. "The Manhattan market is so large there's still a lot of room for a middle-market business lender," he said. "And they love competing against Citi and Chase."
But North Fork's expansion into the lucrative Manhattan market could make the banking company an acquisition target for others, by putting it on the radar screens of large regional banks that want a foothold there, said Mark Fitzgibbon, an equity analyst with Sandler O'Neill & Partners in New York. FleetBoston is clearly interested in expanding in New York, Mr. Fitzgibbon added.
Investors loved the North Fork deal. Shares of Commercial Bank soared an incredible 47.35% in trading on the Nasdaq Tuesday, to $31.3125 a share. Trading in North Fork stock was a little less frantic. The bank's stock climbed 1.37%, to $25.22, on the New York Stock Exchange.
- Additional reporting by Matthias Rieker