People's United Financial
has finally made a leap into the M&A arena by agreeing to purchase
( CHZ) -- a deal that will nearly double its size and create a big New England banking player.
People's, a $12 billion-asset bank based in Bridgeport, Conn., said Wednesday that it will acquire Burlington, Vt.-based Chittenden for $1.9 billion in stock and cash. The deal calls for People's to pay the equivalent of roughly $37 a share, based on the company's prior-day closing price, giving Chittenden shareholders a 31% premium.
The purchase marks People's first bank acquisition since 1998, but the deal isn't surprising. People's has been looking to do a deal that would expand it into the greater New England market, and it had openly stated that it is looking to "build the premier regional bank in the Northeast."
It needed to get its ducks in a row first. Last spring, People's began the process of converting from a state-chartered bank to a federal thrift. It also said at the time that it had planned to open 15 retail branches in Westchester County, N.Y. -- the company's first foray outside its home state of Connecticut.
In addition, People's had previously been operating under a mutual holding company structure in which 58% of its shares were locked up. Two months ago, the company completed a second-step offering in which it raised $3.4 billion from the public markets and no longer operates under the mutual holding company structure.
The deal will pit People's more firmly against some of its largest competitors in the area. The company is up against heavyweights including
Bank of America
, which expanded in New England through its 2004 acquisition of Fleet Financial acquisition; TD Bank, through its now-private franchise, TD Banknorth; and Royal Bank of Scotland, which operates there through its Citizens Financial subsidiary.
People's will also be better positioned against
of Waterbury, Conn. -- the only other independently owned bank based in New England.
"We believe we are buying a superior performing company. Chittenden has higher profitability than most of the selling banks" in other deals, said John Klein, People's chairman and CEO, during a conference call. "This deal conforms to all the strategic and financial objectives that we set forth during the second-step conversion."
Chittenden will add 133 branches to People's, giving the combined company a total of nearly 300 branches in the Northeast. The combined company will have assets of approximately $22 billion.
Analysts had recently been speculating that Chittenden was considering a sale.
Peter Winter, an analyst at BMO Capital Markets, said last month that during a road show with analysts, Chittenden's management spent a lot of time answering questions about a potential sale.
"The standard answer was 'we'll consider anything,'" Winter said in May. "The tone has shifted."
Shares of Chittenden recently were up $6.85, or 24%, to $35.09 on the deal. People's shareholders were less enthusiastic, sending shares down $1.13, or 6%, to $17.58.
Anton Schutz, president of Mendon Capital Advisors and the fund manager to Burnham Financial Services, said People's investors are worried about the integration and management's capability of running a larger company.
"The company in some ways was relatively obscured to the Street until they went fully public," he says. "As rumors started that People's is going to do a deal ... a lot of people were shorting
the stock thinking they were going to do a dumb deal that was really big and far too expensive.
"Chittenden culturally and managementwise is much closer" to People's, adds Schutz, who owns positions in People's. "We're not talking about a great leap to bring these companies together. This is a really good fit."