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Most of the cost savings that People’s United will achieve when it completes its purchase of Hartford-based United Bank will be through staff and branch reductions.
People’s United announced yesterday that it intends to acquire United Bank in an all stock transaction valued at $759 million. Under the terms of the deal, each United share will be exchanged for .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.
A key part of the deal for People’s is that the bank expects to realize 55 percent in cost savings of United’s non-interest expenses including $88 million in pre-tax cost savings.
“A significant amount will be executive, board and employee cost reductions driven by branch overlap, but also significant savings in administrative functions, real estate, regulatory costs and marketing and advertising,” People’s United CFO David Rosato said on a conference call following the acquisition.
Branch consolidation makes sense considering 61 percent of United’s branches are within two miles of a People’s United branch and 88 percent of United branches are within 5 miles.
But cost savings were not the only thing that drew People’s United to the deal.
United Bank adds long-tenured, well established depositors to whom that People’s United will be able to market a suite of other products. The purchase also greatly helps the company reaffirm its commitment in Connecticut and Western Massachusetts.
“This transaction further consolidates Connecticut, our largest and most profitable market,” Jack Barnes, president, CEO and chairman of People’s United, said on the conference call. “With United, the pro-forma institution will have approximately $24 billion in deposits in the state, strengthening People’s United second largest market share position.”
The combined entity will also have more than $7 billion in deposits in Hartford and $2.7 billion in deposits in Western Massachusetts, giving People’s United the fourth largest deposit share in that region.
