Updated with comment from FIG Partners analyst Christopher Marinac.
Hudson City's shareholders "will receive consideration valued at 0.08403 of an M&T share in the form of either M&T stock or cash, based upon the election of each Hudson City shareholder," subject to the terms of the merger agreement, "which provides for an aggregate split of total consideration of 60% common stock of M&T and 40% cash."
The deal values Hudson City at $7.22 a share, representing a 12% premium over Friday's closing price of $6.44. The purchase prices values Hudson City at 80% of its reported June 30 tangible book value of $9.08.Hudson City has been facing heavy pressure on its net interest margin in the prolonged low-rate environment, and has undergone two major balance sheet restructurings. Following a first-quarter 2011 restructuring that was forced by regulators and included the prepayment of $12.5 billion in higher-cost borrowings charges of $649.3 million, the company prepaid another $4.3 billion in borrowings during the fourth quarter of last year, resulting in $440.7 million in charges. Despite the painful transition, Hudson City's second-quarter net interest margin -- the difference between a bank's average yield on loans and investments and its average cost for deposits and wholesale borrowings -- was a stubbornly low 2.12%, declining from 2.15% in the first quarter, and 2.14% in the second quarter of 2011. With long-term rates continuing to see downward pressure, especially for Hudson City's bread-and-butter mortgage lending business, the margin pressure was bound to continue. M&T Bank of Buffalo, N.Y., has $80.8 billion in total assets, and Hudson City has $43.6 billion in assets, with 135 branches, with 97 branches in New Jersey, 29 in New York, and nine in Fairfield County, Conn. M&T will pick up $25 billion in deposits and $28 billion in loans, through the Hudson City deal. Following the merger, M&T plans to "repay approximately $13 billion of Hudson City's long-term borrowings by liquidating its comparably sized investment portfolio." M&T also said that the merger with Hudson City will be "accretive to the combined company's capital ratios, capital generation and tangible book value per share, as well as its GAAP and operating earnings per share."