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Updated to include earnings information, stock price change
NEW YORK (
M&T Bank(MTB) agreed to acquire
Wilmington Trust(WL) in a stock-for-stock transaction valued at about $351 million, the two institutions said jointly on Monday.
Shareholders of Wilmington Trust will receive 0.051372 shares of the regional bank's common stock in exchange for the trust bank's stock, the companies said. M&T will acquire 48 branches in Delaware, giving M&T a total of 800 branches at closing. The deal is expected to be completed in mid-2011.
The deal is valued at roughly $3.84 per Wilmington Trust share, which represents 1x tangible book as of September 30. M&T anticipates that the deal will be accretive to GAAP and operating earnings per share in 2012 and estimates an internal rate of return on the investment above 20%, it said.
M&T will also assume responsibility for Wilmington Trust's $330 million of preferred stock still held by the U.S. Treasury Department.
Separately, Wilmington Trust also announced a third-quarter loss of $365.3 million. After dividends and accretion on Wilmington's preferred stock owned by the U.S. Treasury, the net loss available to common shareholders was $369.9 million, or $4.06 per share. Analysts, on average, expected a loss of 43 cents a share.
Wilmington Trust said the primary causes of the loss were the continued deterioration in commercial credit quality, which resulted in a loan loss provision of $281.5 million, and income tax expense of $100.7 million, as the company established a valuation allowance on deferred tax assets.
Wilmington shares plummeted 44% as investors likely perceive the deal as short changed. The stock was trading at roughly $4 shortly after the market opened.
Wilmington Trust shares were falling last week
amid rumors that the institution was looking for a buyer ahead of its quarterly earnings release. Shares closed on Friday at $7.09. The stock was already trading at $3.95 shortly before the market opened on Monday.
However, the combination of M&T, one of the strongest regional banks in the U.S., and Wilmington Trust, a wealth management and integrated financial services firm, will create a much-needed platform for the latter company, which had been hit hard by soured commercial real estate exposure and other types of securities. Wilmington Trust was rumored to also be looking for additional capital via private equity players, an action that at least one analyst said was likely mandated by regulators.
"Wilmington Trust today has two very strong fee-based businesses that continue to perform well. However, as our third quarter earnings announcement shows, we continue to face difficult financial realities associated with the credit quality of the loan portfolio in our banking business," said Donald E. Foley, Wilmington Trust's chairman and chief executive. "As a result, our Board examined a range of strategic alternatives and has held discussions with several potential partners.
M&T is the "best available option for our stockholders and also serves the interests of our clients and almost 3,000 staff members," Foley said. "In M&T, Wilmington Trust has found a partner with complementary businesses, a strong financial foundation and an outstanding reputation. Our merger will allow us to build on our many strengths and preserve our commitment to clients and the Delaware community."
The acquisition is another example of M&T's strength as a viable player in the U.S. banking industry. The $68 billion-asset bank was in on again-off again merger discussions earlier this year with
Banco Santander(STD), as the Spanish bank looked to bolster its fledging U.S. franchise,
Sovereign Bank. The talks fell apart over disagreement over who would control the U.S. operation.
"The strategic partnership brings together two institutions that share many common values and that operate several distinct but complementary lines of business," M&T Chairman and CEO Robert Wilmers said in a statement. "By leveraging the combined strengths of both organizations we are building an even more powerful franchise with strength and stability, scale and density and top-of-class products and services."
Shares of M&T Bank were rising 3.1% to $77.05. The stock is down approximately 11% since Oct. 5, the day Allied Irish Banks announced it would sell its $2 billion stake in M&T through a public offering, effectively taking any deal with Santander off the table.
AIB Offering Takes M&T Deal Off the TableRegional Banks' Future Hinges on LoansM&T Earnings Impress, Shares FalterEuropean, Regional Banks to Drive MergersThe New Bank M&A Paradox--Written by Laurie Kulikowski in New York.