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What's in Store for M&T Bank (MTB) from Hudson Merger?

After three failed attempts, Buffalo-based M&T Bank CorporationMTB finally managed to close its long-delayed merger with Hancock Holding Company on Nov 1. However, the path has not been an easy one for M&T in terms of approximate merger consideration as well as the acquired portfolio.

This is because, based on the transaction terms, the cash-and-stock deal is reportedly valued at $5.5 billion, which is considerably higher than the estimated value of $3.7 billion when the deal was initially inked in Aug 2012.

Moreover, the merger, which was projected to fetch M&T Bank around $25 billion in deposits and $28 billion in loans in 2012, managed to enhance the company's balance sheet with deposits and loans worth only $20 billion and $19 billion, respectively.

Nonetheless, given M&T Bank's willingness to complete this challenging merger, we remain optimistic about this deal, which is expected to expand the company's retail branch network in eastern U.S. Notably, the company has gained access to 135 Hudson branches, situated primarily in New Jersey. Further, product and balance-sheet diversification, stemming from the acquisition, will likely support the company's top line.

Additionally, Hudson recorded notable improvement in credit metrics in the recently reported quarter, with nonperforming assets and net charge-offs declining 17.5% and 9.7% year over year, respectively. A solid asset quality aids similar improvement in M&T Bank's credit quality, as witnessed over the last few years.

Moreover, based on improvements experienced in capital levels at Hudson City during the third quarter, we expect the merger will further strengthen M&T Bank's capital position.

While long-term outcome of the merger is difficult to predict, we anticipate integration-related expenses to pose a major headwind in the next few quarters. Notably, escalating expenses, which limit operational efficiency, are already a major hindrance for M&T Bank's earnings.

Merger Detail

Per terms of the transaction, Hudson City shareholders have the option of either receiving 0.08403 share of M&T Bank common stock for each Hudson City share or equivalent cash. Notably, cash or stock option is subject to the overall value of the deal, which is 60% in stock and 40% in cash.

Hudson City branches will continue to operate under the same name, until an anticipated conversion to M&T Bank's name takes place in the first quarter of 2016.

Further, as part of the merger, Denis J. Salamone, Chief Executive Officer and Chairman at Hudson, has joined M&T Bank's board of directors.

M&T Bank currently carries a Zacks Rank #3 (Hold).

Investors interested in the finance space can consider Franklin Financial Network, Inc. FSB and Farmers Capital Bank Corp. FFKT , both sporting a Zacks Rank #1 (Strong Buy); and Middleburg Financial Corp. MBRG , which holds a Zacks Rank #2 (Buy).

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M&T BANK CORP (MTB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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