NEW YORK -- M&T Bank, which counts Warren Buffett's Berkshire Hathaway among its largest investors, agreed to buy Hudson City Bancorp for about $3.7 billion to expand in New Jersey.
Under terms of the agreement, each Hudson City shareholder will receive 0.08403 of an M&T share in the form of either M&T stock or cash, the companies said Monday. The deal values Hudson City about 12 percent higher than the company's closing price on the Nasdaq Stock Market on Friday.
M&T will gain 135 branches, including 97 in New Jersey, becoming the fourth-largest lender in the state by deposits. The Buffalo, N.Y.-based company will add $25 billion in deposits and $28 billion in loans, according to the statement. The acquisition is the biggest takeover of a U.S. bank announced this year, according to data compiled by Bloomberg, and includes branches in New York and Connecticut.
"It's a very attractive transaction for M&T right off the bat," said Joseph Fenech, an analyst at Sandler O'Neill & Partners New York who rates M&T shares "buy." "If you look up and down the M&T franchise from upstate New York to Virgina, two of the holes were Long Island and New Jersey."
The takeover of Hudson City creates a "comprehensive community-banking franchise that provides a full range of checking and savings accounts, debit and credit cards, home- equity loans and other lending options, plus small-business and commercial-banking services," M&T Chief Executive Officer Robert Wilmers, 78, said in the statement.
Hudson City is led by CEO Ron Hermance, 65, who returned to the Paramus, N.J.-based bank Aug. 1 after taking medical leave in February to receive a bone-marrow transplant.
The U.S. Treasury Department said earlier this month it priced an offering of the preferred stock it holds in M&T as part of the Troubled Asset Relief Program. As a result, the Treasury will no longer hold any shares of M&T's preferred stock, though it still holds warrants to purchase about 1.7 million common shares, according to a statement at the time.
M&T expanded in 2011, when it completed the purchase of Wilmington Trust for more than $400 million to build market share in Delaware and expand wealth management and corporate services to boost fee income. In 2009, M&T bought Provident Bankshares to add deposits in the mid-Atlantic region.
Hudson City was the largest U.S. bank to forgo a government bailout. The lender took an after-tax charge of $440.7 million, or about 89 cents a share, last year from the early repayment of $4.3 billion of so-called structured putable borrowings. The company said it was under pressure from regulators to reduce risk.
Denis Salamone, Hudson City's acting chairman and CEO, said earlier this year that it had become difficult for the bank to profitably expand its residential-lending portfolio amid record- low interest rates and the participation of government-sponsored enterprises in the market. As a result, it began evaluating a "variety of strategies" to adapt, he said.
"Historically, we have kept all of our loans on our balance sheet," Salamone said in July. "While we will continue to offer loans to keep in our portfolio, we will also begin to offer residential mortgage loans that are eligible for sale in the secondary market."
Salamone also said at the time that the bank planned to start making commercial loans to help balance its risks.
Bank of America, Wells Fargo & Co. and Toronto- Dominion Bank are the largest banks in New Jersey. They all expanded by acquiring other lenders in the state, which is the third-wealthiest in the U.S. by per-capita income, according to data compiled by Bloomberg. Toronto-Dominion, Canada's second- largest lender, bolstered its presence in New Jersey in 2008 with the purchase of Cherry Hill-based Commerce Bancorp for more than $7 billion.
WASHINGTON POST-BLOOMBERG -- 08-27-12 1115ET