M&T Secures Wilmington Trust - Analyst Blog

M&T Bank Corporation (MTB) has agreed to buy Wilmington Trust Corporation (WL) in a stock-for-stock transaction valued at around $351 million. The deal, which is expected to close by mid-year 2011, would add 48 branch locations in Delaware and 225 ATMs to M&T Bank's network and result in the company operating 800 branches and 2,000 ATMs in 8 states, the District of Columbia and Ontario, Canada.   

Deal Details 

As per the terms of the agreement, common shareholders of Wilmington Trust will get 0.051372 shares of M&T common stock in exchange for each share of Wilmington Trust common stock they possess. M&T would assume responsibility for $330 million in Series A preferred stock of Wilmington Trust, which were sold to the U.S. Treasury in December 2008 under the bailout program. 

The deal would add $8.3 billion in deposits and $8.1 billion in loans from the merger to M&T, providing it the top deposit share and a significant commercial market share in Delaware. The deal, as expected by M&T Bank, would be accretive to GAAP and operating earnings per share in 2012, and the internal rate of return on the investment is projected to exceed 20% by M&T. Donald E. Foley, chairman and chief executive of Wilmington Trust, would be appointed to the board of directors of M&T. 

The Quarter for Wilmington 

Wilmington Trust, on the other hand, continued to experience a deterioration of credit quality and posted a third quarter 2010 loss of $365.3 million. This compares with a loss of $116.4 million in the prior quarter and a loss of $5.9 million in the year-ago quarter. The company was looking for strategic alternatives and has been in discussions with a number of potential partners. 

This deal, valued at $3.84 per Wilmington Trust share, is based on M&T's closing stock price of $74.75 on October 29, 2010. It represents a significant discount to Wilmington Trust's share price of $7.11 as on October 29, 2010. As a result, investors of Wilmington Trust have responded negatively and the stock price plunged over 40% in Monday's trading. 

Deal Benefits

Though Wilmington Trust's banking business has been a drag on its earnings, its Wealth Advisory Services and Corporate Client Services units remain lucrative and M&T would leverage this highlyconsidered Wealth Management and Corporate Client businesses of Wilmington Trust. On its part, M&T will seek to introduce those services to its existing commercial banking customers across its footprint.  It would also introduce its branch-based retail investment and insurance related businesses across the Wilmington Trust branch network under the M&T Securities brand.   

The Quarter for M&T Bank

M&T Bank reported third quarter operating earnings of $1.55 per share. On a GAAP basis, the company reported $1.48 per share, ahead of the Zacks Consensus Estimate of $1.41. Results were aided by an expansion in net interest margin coupled with lower credit costs. 

M&T Bank managed to put solid quarters even during the financial crisis and continues to experience growth in net interest margin. The acquisition of Provident and Bradford in the Mid-Atlantic region has proved to be meaningful, both in terms of customer base and profitability. 

Credit quality challenges also seem to lessen. Though the tepid recovery of the economy and challenges from the recent legislative actions remain headwinds for the stock, a sound capital position with a growing core deposit will uphold the bank in the long run. Additionally, we believe the acquisition of Wilmington Trust would also help in expanding its network and customer base. 

M&T Bank shares are maintaining a Zacks #3 Rank, which translates into a short-term “Hold” recommendation. We have a long-term “Neutral” recommendation on the stock.

 
M&T BANK CORP (MTB): Free Stock Analysis Report
 
WILMINGTON TRST (WL): Free Stock Analysis Report
 
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