People's United Financial Inc. of Bridgeport, Conn., agreed to acquire Financial Federal Corp. in a stock and cash deal valued at about $738 million, increasing its presence in the equipment-finance sector.

Under the deal, expected to close in the first quarter of next year, Financial Federal shareholders will receive $11.27 and one share of People's United stock, or $27.74 based on Friday's close, a 35% premium to Financial Federal's closing price.

Shares of People's United, a Northeast-based bank, rose 3.8% to $17.10.

People's United expects the deal to add to operating earnings next year and have a slight positive impact on People's capital levels. People's President and Chief Executive Philip R. Sherringham said Financial Federal's equipment financing business would complement its People's capital and leasing unit, and add to earnings without diluting its capital ratios. "Outside the transportations sector, there is virtually no overlaps between Financial Federal's focus on construction and refuse and PCLC's focus" on printing and packaging, he said.

The deal would create the 13th largest U.S. bank-owned equipment finance business according to Monitor, an industry publication, he said.

Financial Federal, which specializes in financing construction, road transportation and garbage equipment, has been hurt as the recession makes it difficult for customers to repay loans and the credit crunch limits the funds available to do new business.

People's, which has about 300 branches in the Northeast, has seen increases in bad loans with higher unemployment along with the rest of the industry. But it has a strong balance sheet and has been looking at acquiring troubled banks in cooperation with the Federal Deposit Insurance Corp.

The deal requires approval of Financial Federal shareholders.

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