DNBK Danvers Bancorp, Inc. (MM)

People's United Financial Inc. (PBCT) and Danvers Bancorp Inc. (DNBK) got the approval for their proposed merger from the Office of the Massachusetts Commissioner of Banks and the Massachusetts Board of Bank Incorporation on June 27, 2011. In May, the deal was also approved by Danvers Bancorp shareholders and the Office of Thrift Supervision. The merger is expected to close on June 30, 2011.

The approvals from the state were received after five months of the announcement of the merger. In January 2011, People’s United announced the acquisition of Danvers Bancorp Inc. in Massachusetts, in a 55% stock and 45% cash transaction valued at $493 million.

On Tuesday, People's United announced the merger consideration to be given to Danvers’ shareholders. Based on final election results and with the application of proration provisions, which were mentioned in the merger agreement, Danvers shareholders will receive the consideration.

Danvers shareholders, who made a valid stock election and did not give any preference, will receive 1.624 shares of People's United common stock for each share held. Further, for Danvers shareholders who made valid cash election, about 55.3% of the shares held will be exchanged for cash and the remaining of shares held will be exchanged for People's United common stock, at the rate of $23.00 for each share exchanged for cash, and 1.624 shares of People's United common stock for each share exchanged for stock.

As per the terms of the agreement, fractional shares of People's United common stock will not be issued and Danvers shareholders will receive cash based on the closing price of People's United common stock on June 29, 2011. The total consideration paid by People’s United comprises approximately 18.5 million shares of common stock and $214.5 million in cash.

With People’s United’s existing presence in Massachusetts, Danvers Bancorp makes it New England’s largest independent bank and the seventh largest bank, both in Massachusetts and Boston MSA.  Danvers Bancorp, a high-quality commercial institution, offers an excellent platform for growth and balances the company’s continuous footprint from Worcester, in central Massachusetts, through Boston and New Hampshire.

People’s United expects the transaction, which marks a platform of growth for the company, to be accretive to operating earnings with an Internal Rate of Return (IRR) greater than 15%.

People’s United, which competes with companies such as New York Community Bancorp Inc. (NYB) and Hudson City Bancorp Inc. (HCBK), benefits from a healthy business portfolio that has grown inorganically over time. With about $25 billion in assets, the company provides consumer, commercial and wealth management services through its subsidiary, People's United Bank, with nearly 341 branches in Connecticut, Vermont, New Hampshire, Massachusetts, Maine and New York.

People's United is trying to overcome the challenging economic environment through opportunistic acquisitions and a stable interest margin. Recent acquisitions coupled with reported positive earnings reflect its strength in capital and liquidity of the company. Though in the quarter, credit metrics remained volatile, loan portfolio and deposits growth acted as positives. Moreover, we believe People's United’s earnings will improve based on synergy gains resulting from the completion of all the recent acquisitions.

People's United currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. Moreover, we maintain our long-term Neutral recommendation on the stock.

 
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