Merger would make #1 PA bank, enrich Spanish owners
M&T could buy Sovereign from Santander for nearly $8 billion, giving the Spanish bank a $5 billion-plus profit on the deal
Shares of M&T Bank (its Philadelphia arm is the old Frankford Trust) jumped more than $3 to above $94 today (highest since 2008) on speculation it's close to a profitable merger deal.
"We think M&T would want to buy Santander's wholly-owned U.S. subsidiary, Sovereign Bank," Macquarie Securities analyst Al Savastano tells clients in a report. "The purchase price of $7.9 billion would include a mix of stock and cash." The deal would "transform" M&T and "give the company a much wider presence in the Northeast" up to Boston, where Sovereign is now based (used to be Reading.)
Combined, the banks would have the biggest branch network in Pennsylvania, with nearly 500 offices, vs nearly 400 for market-leader PNC (though the merged banks would likely close or sell some offices.) "M&T for Sovereign... makes sense," wrote KBW Inc.'s Matthew Clark.
But company stocks usually fall, instead of rising, when they're about to buy something big. This is the reverse of speculation last month that Banco Santander of Spain, which owns (formerly Reading-based) Sovereign Bank, wants to buy Buffalo-based M&T as Allied Irish Banks tries to sell its 20% M&T stake.
Bloomberg said last week that Santander has confirmed there've been talks but nothing decisive. "No comment," said M&T spokesman Mike Zabel. Same, said Sovereign spokeswoman Ellen Molle.
M&T owns the former Frankford Trust Co. of Philadelphia and ex-Dauphin Deposit Corp. of central PA. "M&T is extremely efficient, even miserly," Robert Costello of Costello Asset Management, Huntingdon Valley, told me admiringly. He noted the stock hit its highest price since 2008 in trading this morning on word of a possible deal - unusual for an acquirer.
Such a deal would give Santander a profit of more than $5 billion on its Sovereign investments since the mid-2000s, at the expense of Sovereign's former shareholders who sold the stock cheap, former Sovereign chairman Jay S. Sidhu, forced out by directors and investors who demanded the sale, told me this morning. Sidhu has been hiring some of the 1,000-plus ex-Sovereign workers and managers Santander let go in the Reading area for his own Customers 1st Bank.