* Deal values Financial Federal at $27.74/shr * Deal to add to People’s United’s oper profit in 2010
* Financial Federal soars 37 pct, People’s United up 4 pct (Adds details, background; updates stock activity)
By Anurag Kotoky and Sweta Singh
The deal values Financial Federal at $27.74 a share, a premium of 35 percent to the stock’s Friday close of $20.55.
Financial Federal shares jumped as much as 36 percent Tuesday. People’s United shares, which rose as much as 4 percent, later pared their gains to trade down 5 percent.
“I think its overall positive. It adds to their earnings power and balance sheet capacity for doing additional deals,” analyst Christopher Nolan of Maxim Group said.
People’s United, one of the better-capitalized banks in the United States, said it expects the deal to add significantly to its operating profit in 2010 and be slightly positive to its capital levels on a pro forma basis.
“Financial Federal is a leader in equipment financing and provides a valuable complement to our existing business lines, particularly, People’s Capital and Leasing, our equipment financing subsidiary,” People’s United Chief Executive Philip Sherringham said in a statement.
Financial Federal’s shareholders will receive $11.27 in cash and one People’s United common share for each share held, in a deal that has a termination fee of $26 million.
“I like the deal,” analyst Richard Weiss of Janney Montgomery Scott said.
“Generally when you do deals in the middle of recession your eyes are wide open. More problems happen when you do deals when the times are really good because you are not as careful. I think they (People’s United) have done due diligence,” he added.
The Bridgeport, Connecticut-based People’s United, which was added to the S&P 500 Index .SPX last November, has been saying it was seeking acquisitions as it had a massive cash reserve of $2.5 billion.
People’s United spokesman Brent DiGiorgio had told Reuters in April the company was actively seeking acquisitions of like-minded banks in the corridor from Maine to Washington, D.C. [ID:nBNG268213]
At Sept. 30, People’s United Financial’s tangible equity ratio — a measure of capital strength closely watched by investors these days — stood at 18.6 percent, higher than most of the banks in the nation.
Analyst Weiss believes that the company, which has about $2.5 billion in excess cash, will be scouting for acquisition opportunities in the near-term, including possible deals brokered by the U.S. Federal Deposit Insurance Corp.
“When you have a balance sheet like People’s in this kind of economy there is a lot of opportunity which should be coming in their way. They should be quite busy exploring different kind of acquisition opportunity,” Weiss said. (Reporting by Sweta Singh in Bangalore; Editing by Deepak Kannan and Anil D’Silva) ((email@example.com ; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: firstname.lastname@example.org))