UPDATE 1-Investors Bancorp to buy American Bancorp for $140 mln

Dec 15 (Reuters) - Bank holding company Investors Bancorp Inc (ISBC.O) said it agreed to buy smaller rival American Bancorp of New Jersey Inc (ABNJ.O) for $140 million in cash and stock to expand in Essex and Passaic counties.

The $12.50-per-share offer represents a premium of 43 percent over American Bancorp's Friday closing price of $8.75.

Investors Bancorp said 70 percent of American Bancorp shares will be converted into Investors Bancorp common stock and the remaining 30 percent will be converted into cash.

Shareholders of American Bancorp will have the option to receive either 0.9218 of a share of Investors Bancorp or $12.50 in cash for each American Bancorp of New Jersey common share held.

Investors Bancorp said the deal will add 4 percent to its 2010 earnings, before acquisition transaction charges, and is expected to add 5 percent to its 2011 earnings.

The acquisition is expected to close in the second calendar quarter of 2009.

Shares of New Jersey-based Investors Bancorp closed at $13.56 Friday on Nasdaq. (Reporting by Anurag Kotoky in Bangalore; Editing by Vinu Pilakkott)