|
|
|
Webster Goes for the Gold
Expanding outside state, is Waterbury bank ready to swim with the sharks or become shark bait
|
Business New Haven
10/27/2003
By: Michael C. Bingham
|
WATERBURY - All agree that Webster Financial Corp.'s October 7 announcement that it would buy FirstFed America Bancorp Inc. (AMEX: FAB) in a $465 million cash-and-stock transaction positions Webster well for the future.
Exactly what kind of future? On that question, there is considerably less consensus.
The deal - which, pending regulatory approvals, would close in the first quarter of next year - marks Webster's first foray into interstate banking.
FirstFed is the Swansea, Mass.-based holding company for First Federal Savings Bank. First Federal has $2.7 billion in assets and 26 branches - 19 in Massachusetts and seven in Rhode Island.
Together, the two banks would have 141 branches in three states, $16 billion in assets, more than 3,000 employees and $2.2 billion in market value. A yet-to-be determined number of administrative and back-office positions at FirstFed are certain to be pared as redundant, Webster officials acknowledge.
By adding FirstFed's footprint in southeastern Massachusetts and greater Providence, R.I. to its own, the move will give Webster a solid southern New England base and position it to compete on more equal footing with institutions such as Fleet Financial, Citizens Bank and Sovereign.
In addition, Webster recently announced its intention to open several branches in Westchester County, N.Y., thereby sticking a toe into the waters of yet a fourth Northeast state.
Creating what would be the 46th largest bank in the U.S. is a natural extension of the growth strategy Webster has pursued since the early 1990s, transforming the bank through well-placed acquisitions from a small Waterbury institution into a major statewide player.
Coincidentally or not, both Webster and FirstFed share thrift and savings bank roots, and have worked over a period of years to transform themselves into full-service commercial banks. In addition, both have established insurance and investment businesses. Webster Financial is also majority owner of Chicago-based Duff & Phelps LLC, a financial-advisory firm.
Most bank analysts like the fit. But it's not a perfect one. A significant geographic gap exists between Webster's core market in central and southwestern Connecticut, and FirstFed's footprint in eastern Rhode Island and the New Bedford and Fall River markets in Massachusetts. In between lies New London and Westerly, R.I.
Webster Chairman and CEO James C. Smith, architect of the bank's expansion, said, "We will knit the markets together over the next couple of years."
One way to accomplish that is by opening individual branches - as Webster has done in lower Fairfield County. Another way is by buying additional banks.
That assumes, of course, that Webster continues to be a buyer - and not a seller. The possibility exists that Webster could itself become a takeover target, creating an 800-pound New England banking gorilla.
"Webster needs to continue to grow to be able to grow their earnings," observes Jared Shaw, senior analyst with Keefe Bruyette & Woods (KBW) in Hartford. "So I think that's part of their thought process, of growing through acquisition.
"That process could potentially make them more attractive to a potential acquirer," Shaw adds, "but I don't think that's the reason in and of itself that the bank is doing this."
In the short term, Webster said it expected its FirstFed acquisition to add to earnings immediately, merger costs notwithstanding.
For 2004, Webster expects per-share earnings to increase one percent, excluding merger costs of $3.1 million, but including the impact of balance-sheet restructuring to more closely reflect a commercial bank, Webster officials said. For the first full year of combined operations in 2005, Webster expects the acquisition to increase per-share earnings by 1.4 percent.
Terms of the deal call for FirstFed shareholders to receive either 0.5954 of a Webster share or $24.50 in cash for each FirstFed share held. That represents an 8.2-percent premium to FirstFed's $22.65-a-share closing price October 6 on the American Stock Exchange.
In a statement Webster said it intends to pay 60 percent of the purchase price in stock and 40 percent in cash.
As part of the deal, Webster plans to "deleverage" its balance sheet by up to $1.5 billion through a reduction in investment portfolio, loan sales or securitization. This is consistent with Webster's plan, initially announced last month, to convert its federal savings bank, Webster Bank, to a national bank charter.
Under the combined company, FirstFed Chairman, President and CEO Robert F. Stoico would become chairman and CEO for the Massachusetts and Rhode Island region of Webster.
What's next for Webster. "If I were [Webster], I would look for ways to continue to grow the core community bank," says KBW's Shaw. "In the past few years Webster has focused on growing their fee-income business lines, like insurance, asset-based lending and equipment financing.
"I'd much rather see them do bank acquisitions that allow them to continue to grow their core banking assets than some of these other specialized business lines," Shaw adds.
|
Go FirstGo PreviousGo
NextGo LastGo
to Index
|
|
