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People’s United Bank’s latest acquisition target, the Connecticut-based United Bank, originally rejected a much higher offer from People’s when it first began shopping for a buyer last year.
Under the terms of the deal agreed last month, each United share will be exchanged for 0.875 of a People’s United share, valuing each share at $14.74 per United Financial Bancorp share based on the closing price of People’s United’s common stock on July 12. The deal is valued at 135 percent of United’s tangible book value.
American Banker first reported People’s United’s earlier offer.
United Bank began seriously discussing a potential merger in March of last year, according to a securities filing, following analysts’ downgrading of its earnings forecast and mounting challenges to continued earnings growth. The bank’s pace of growth slowed between 2017 and the end of 2018 and between the last quarter of 2018 and the first quarter of 2019, United’s return on average assets fell to 0.8 percent and its return on equity dropped from 9.26 percent to 7.86 percent. In addition, the bank disclosed in an April quarterly report that it is facing $41.7 million in potential losses from investments in a series of tax credits that were found to be tied to an alleged Ponzi scheme.
People’s United appears to have been United Bank’s preferred merger partner from the beginning, as United President and CEO William Crawford called People’s Chairman and CEO Jack Barnes to begin negotiations. Ultimately, People’s offered to acquire United in a stock-for-stock merger at 1.18 shares of People’s United common stock for each share of United common stock, on Aug. 31, 2018, representing a 22.9 percent premium based on the share prices of the companies at the time.
Faced with a competing offer from another, unnamed entity – a stock-for-stock merger representing an approximately 24.4 percent to 29.2 percent premium based on the share prices of the companies at the time – United rejected People’s offer. However, both boards ultimately decided the merger wouldn’t generate the kind of earnings both sought and backed out of the deal.
As United’s financial performance declined over the last quarter of 2018 and investors began speculating that a merger might be imminent, People’s returned with a new offer in February of this year, representing an approximately 12.2 percent to 17.8 percent premium based on the share prices of the companies on Feb. 15. As negotiations continued and the banks performed their due diligence work, People’s lowered its offer to the final exchange ratio of one share of People’s common stock for 0.875 shares of People’s United common stock for each share of United Financial common stock, representing a mere 4 percent premium over the closing price of the United Financial common stock on June 27.
The merger is facing opposition from one of United’s largest private shareholders, former president and CEO William McGurk, who has strongly criticized the deal but faces significant challenges in trying to stop it.
