(Reuters) - M&T Bank Corp (MTB.N) said it would buy Hudson City Bancorp Inc HCBK.O in a stock and cash deal worth $3.7 billion, expanding its franchise in the eastern United States and taking a step toward the long-awaited consolidation of regional banks.
M&T intends to shrink Hudson City’s $43.6 billion balance sheet by roughly a third as it liquidates an investment portfolio held by the Paramus, New Jersey-based bank, M&T said on Monday.
The deal quickly won the endorsement of the market. Hudson City shares rose 16.3 percent in early trading to $7.49, and M&T stock rose 4.7 percent.
For Hudson City shareholders, the market move sweetened a 12 percent premium to the deal struck by the companies. Based on the Friday closing price of M&T stock, the deal was worth $7.22 for each Hudson City share.
M&T, which is based in Buffalo, New York, and has $80.8 billion in assets, said it expects to gain about $25 billion in deposits and $28 billion in loans from the merger, before adjustments.
The transaction is expected to immediately boost the combined company’s capital ratios, as well as its GAAP and operating earnings per share.
Hudson City Chairman and CEO Ronald Hermance will join the board of M&T after the closing of the deal, which is subject to approval by regulators and by shareholders from both companies.
M&T will acquire Hudson City’s network of 135 branch offices; 97 are located in New Jersey, with the rest in downstate New York and in Fairfield County, Connecticut. The companies said there is “very little overlap” with M&T’s branches.
The combined network will have 870 branches from Connecticut to Virginia.
The deal takes a step toward satisfying long-running predictions of consolidation among regional banks amid slack demand for loans in the aftermath of the financial crisis.
It follows M&T’s acquisition of Delaware-based Wilmington Trust Corp, announced in November 2010.
The agreement calls for M&T to pay for the deal with 60 percent stock and 40 percent cash.
Reporting by Jochelle Mendonca in Bangalore and David Henry and Nadia Damouni in New York; Editing by Joyjeet Das, Chizu Nomiyama and John Wallace