What is happening?
Actions of Astoria Financial (NYSE: AF) were trading up about 12% at 11:30 a.m. EST following the announcement of the company’s merger with Sterling Bancorp (NYSE: STL).
The terms of the agreement provide for an all-share transaction in which Astoria Financial shareholders will receive 0.875 pound sterling shares for each Astoria share they own. This values ââAstoria Financial’s stock at around $ 21.29 per share, based on Sterling Bancorp’s stock price at 11:30 a.m.
In a press release, Sterling Bancorp explained that she believes the integration can generate around $ 100 million in annual savings when fully implemented, an amount equal to 35% of the non-interest expense of ‘Astoria.
More immediately, Sterling expects the transaction to add about 12% to tangible book value per share at closing, and add about 9% to earnings per share in 2018, excluding restructuring charges.
Previously, Astoria Financial had agreed to merge with New York Community Bancorp (NYSE: NYCB), but this deal would have failed to pass the regulatory exam. The combined institution would have been heavily invested in commercial real estate loans, as New York Community Bancorp operates as a sort of specialist in commercial real estate and multi-family loans in the New York market.
Based on a pro forma presentation, Sterling and Astoria each have less than 46% of their loan portfolios tied to commercial real estate and multi-family loans, compared to a concentration of nearly 93% for New York Community Bancorp.
Investors clearly see little risk of this deal failing. At a recent price of $ 20.79 per share, Wall Street values ââAstoria Financial shares at a slight 3% discount from their implied value, based on the current prices of Sterling Bancorp shares. The transaction is expected to be finalized in the fourth quarter of 2017.
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