Banking Competition Likely to Heighten With M&T Bank Corporation (MTB) – Hudson City Bancorp, Inc. (HCBK) Merger

At M&T’s current levels, this merger values Hudson City Bancorp at approximately $8.58 per share. Relative to the company’s current share price of $8.55, this represents a fractional premium. Relative to Hudson City’s pre-announcement closing price of $6.44, this represents a premium of 32.7 percent. Since Hudson City’s exact value may fluctuate in relation to M&T’s share price, investors are advised to watch M&T’s price action for signs of temporary weakness. Such movements may represent transient buying opportunities.

Legal Issues and Potential Complications

The success of this deal is contingent upon votes of approval from the shareholders of both companies as well as formal regulatory approval from U.S. authorities. As it currently stands, these approvals appear to be all but assured. With no legal action on the horizon, the merger should close by the end of the second quarter.

Long-Term Prospects and Likely Outcomes

It is important to note that this deal requires M&T to shoulder a significant amount of Hudson City’s outstanding debt. In the wake of the financial crisis, the company accumulated nearly $13 billion in unpaid obligations. This has been a major cause of the long-term weakness in its shares. It appears that M&T is willing to assume this outstanding debt in exchange for the new market exposure that the deal provides.

However, the market in which Hudson City Bancorp operates is already highly competitive. Rival thrift banks like People’s United Financial, Inc. (NASDAQ:PBCT) have achieved significant penetration in the suburban counties that ring New York City. Given the relative affluence of clientele at Peoples United Bancorp, these banks tend to focus heavily on wealth management, trusts and retirement accounts. Peoples United Bancorp has grown its earnings by 42% in the last year.  Although M&T has proven that it can compete in crowded, high-margin markets, this deal’s long-term value remains unclear.

Investors who wish to capitalize on a pre-merger surge in M&T’s share price would do well to purchase Hudson City Bancorp shares at these levels. On the other hand, those who believe in the deal’s long-term prospects may wish to buy into M&T directly. In either case, this deal appears to offer the promise of solid returns for opportunistic investors.

The article Banking Competition Likely to Heighten With This Merger originally appeared on Fool.com and is written by Mike Thiessen.

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