Avidia Bank, the result of a merger between Hudson Savings Bank and Westborough Bank, is based at Hudson Savings’ former main office on Main Street in Hudson.

Chalk up one more merger to 2007, a busy year in an increasingly competitive, expensive and diverse financial services environment in the Bay State.

Hudson Savings Bank, a $656 million mutual bank, and Westborough Bank, a $300 million, partially stock-owned institution, officially joined forces on Oct. 22, having passed the necessary regulatory and board vote hurdles – and in the latter bank’s case, recently prevailed in a lawsuit filed by a shareholder who wanted the bank to hold out for a higher offer.

Westborough Bank, which had been 35 percent stock-owned, took the rare step of remutualizing during the transaction. Its other option would have been to offer more of the company for public sale – a step recently taken by United Bank in West Springfield, as reported in last week’s issue of Banker & Tradesman – but Westborough Bank didn’t need the additional capital it would have gained in that transaction, according to Joseph MacDonough, its former president and chief executive officer.

The new bank will be named Avidia Bank, a name chosen so that the town name associated with each of the former banks wouldn’t throw off existing or potential new customers, their former chief executive officers said.

“We wanted a name that would be neutral to both communities,” said Mark O’Connell, Hudson Savings’ former president and chief executive officer, who is president of Avidia Bank. The name, chosen with the help of Newton marketing firm BrandEquity, is derived from the words “avid” and “idea.”

MacDonough is executive vice president at Avidia, which is based at Hudson Savings’ former main office on Main Street in Hudson. He said the merger was a natural fit, given the banks’ locations in neighboring towns and the complementary services they offer.

“I think Mark and I realized that we weren’t heavily competing against each other, but if either of us wanted to grow, we could see each other butting heads,” MacDonough said.

The two had been talking about a potential merger for at least the past 10 years, added Richard Schaberg, a partner in the Washington, D.C.-based law firm Thacher Profitt & Wood, who represented Westborough in the transaction.

“The decision to affiliate with Hudson was not so much a statement about [a proactive decision to remutualize] as a history of the two banks talking with one another and having similar philosophies,” Schaberg said. “It was always, ‘Gee, we should get together.'”

Westborough Bank’s decision in 2000 to form a mutual holding company, and sell 35 percent of its shares publicly, “changed the dynamic” of merger talks – but in the end, not the ultimate decision to proceed, he added.

‘Very Competitive’

In consideration of its partial stock ownership, Westborough Bank’s board considered seven potential merger partners, according to documents he provided. After Westborough and Hudson Savings announced plans to merge last November, two Westborough stockholders filed a class-action lawsuit on behalf of shareholders that called the price of $35 per share that was to be paid during the transaction “grossly inadequate,” and alleged that the bank’s board breached its fiduciary duties to shareholders by not sufficiently shopping the company and rejecting higher offers, among other allegations.

Shareholders Philippe E. Gut and Gwen Pratt Gut sought to stop Westborough’s merger into Assabet Valley Bancorp, Hudson Savings’ mutual holding company. They also alleged that compensation to officers and directors in the then-proposed transaction was “excessive” and self-serving.

In August, Westborough prevailed in the case, which was tried in Massachusetts Superior Court by Schaberg’s firm. The transaction was then allowed to proceed.

“The case is great because it lays out Â… procedures you should follow in remutualization transactions,” said Lawrence Spaccasi, a partner at Muldoon Murphy & Aguggiam, another Washington-based law firm with Massachusetts clients. He added that it also gives banks owned by mutual holding companies a better idea of what fiduciary duties they have to their constituencies, which is significant, as more banks are owned by mutual companies here than in any other state.

The decision is precedent-setting in Massachusetts, and is different from other fiduciary duty to stockholder cases, in that it specifically addresses “remutualization in the face of a possibly superior monetary offer,” Spaccasi said.

O’Connell and MacDonough focused on competition in the central Massachusetts region – and their plans for beating it – over discussion of the legal wranglings that allowed their merger.

“It’s very competitive,” MacDonough said, and O’Connell admitted there are “more than enough financial institutions,” including a number of credit unions, in the corridor west of Interstate 495.

But credit unions’ strength tends toward consumer lending, he said, while Avidia Bank’s combined services will be stronger on the commercial side.

“[Our] competition comes from the Flagships and the Commerces of the world, and the Middlesex Savings,” he said.

But the Greater MetroWest region is one of the few in the state that’s growing, he noted. “Home construction is up, especially in Shrewsbury, Westborough and Marlborough,” he said, probably due to lower real estate prices, relative convenience to Boston and city services that are available, minus the “hustle and bustle.”

Hudson Savings’ strengths will mesh nicely with Westborough Bank’s, he added.

Hudson Savings’ Trust Department and Westborough Bank’s Investment Center are an example of that, MacDonough said. “Trust departments, by their nature, tend to deal with customers who have [more assets],” he said, while investment centers “appeal to a broader, younger audience.”

Combining the two services into one is a natural next step, he suggested.

Merging two into one isn’t always easy, however. Converting Westborough Bank’s core operating systems over to Hudson Savings’ was also a major undertaking, both former CEOs said.

While branch closings and layoffs usually are part and parcel of a merger, particularly in back-office and executive-level positions, O’Connell said there will be none of either in the initial combination.

“Westborough only had two commercial lenders,” O’Connell said, indicating they’re being added on-staff at Avidia. Westborough Bank’s treasurer also recently retired, removing overlap concerns for that post.

Former customers of both banks will see minimal differences, except that Westborough customers had to get a new debit card, and re-log on to Internet banking if they used it, O’Connell said.

The banks’ boards are now one, with 24 directors: nine of Westborough’s former 13 directors, and 15 of Hudson Savings’ former 16.

Over the next couple of years, O’Connell said, the bank will try to reduce the number of directors to fewer than 20.