August 19, 2010 / 3:34 PM / 9 years ago

First Niagara to buy NewAlliance for $1.5 billion

BANGALORE (Reuters) - First Niagara Financial Group Inc FNFG.O is to buy NewAlliance Bancshares Inc NAL.N for $1.5 billion in cash and stock, boosting its presence in New England in the biggest U.S. banking deal in almost two years.

Stifel Nicolaus analyst Collyn Gilbert said the deal signals a return of traditional M&A to the northeast U.S. banking market — amid some expectations for a wave of consolidation among the 8,000 U.S. banks in a post-financial crisis landscape.

The combined bank will have more than $29 billion in assets, including $18 billion in deposits, ranking it among the 25 biggest U.S. banks.

With a market value of close to $3 billion and around $333 million in cash, New York-based First Niagara is one of the strongest regional banks, as tight lending standards in its markets largely insulated it from the real estate crisis.

The bank, founded in 1870 as Farmers and Mechanics Savings Bank, has historically used M&A to drive growth and has made nine bank and branch-network acquisitions in the past decade, including buying 57 branches of ailing National City from PNC Financial (PNC.N) last year. In April, it completed the purchase of Harleysville National Corp.

“This company is an acquirer,” said analyst Jason O’Donnell of Boenning & Scattergood. “The deal is probably a bit bigger than we would have expected from First Niagara, but not entirely surprising.”

The latest deal will add 88 NewAlliance branches in Connecticut and Massachusetts to First Niagara’s network of 255 branches.

First Niagara’s $14.09 per share offer represents a premium of about 24 percent to NewAlliance’s Wednesday close of $11.36. NewAlliance shareholders will get 1.1 shares of First Niagara per NewAlliance share or a cash equivalent, or a mix of the two.

An offer that pays 1.6 times tangible book value for a franchise of the caliber of NewAlliance is a great deal, said Boenning & Scattergood’s O’Donnell.

“NewAlliance’s credit quality is better than its peers and they have an unusually strong brand in that market.”

Shares of First Niagara fell 6 percent to their lowest in more than a year, on near-term dilution fears. Trading in the stock was nearly nine times the normal daily turnover. NewAlliance shares rose as much as 16 percent to a 4-month high in almost seven four times their normal volume.

The deal, expected to close in the second quarter of next year, should add to First Niagara’s earnings in 2011 and contribute about 4-5 percent to 2012 earnings, the lender said.

NewAlliance will own about 30 percent of the combined company, the companies said on a conference call. First Niagara was advised by Sandler O’Neill + Partners, while NewAlliance was advised by JP Morgan.

Reporting by Sweta Singh in Bangalore; Editing by Anil D'Silva and Ian Geoghegan

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