People's United Financial Inc. (PBCT) said Monday it has agreed to acquire Financial Federal Corp. (FIF) in a stock and cash transaction valued at about $738 million. The transaction is expected to close in the first quarter of 2010, subject to customary closing conditions, including the approval of the shareholders of Financial Federal. Following the news, Financial Federal's shares gained more than 32% in intra-day trading on the New York Stock Exchange.
Philip Sherringham, president and CEO of People's United, said, "Financial Federal is a leader in equipment financing and provides a valuable complement to our existing business lines, particularly, People's Capital and Leasing (PCLC), our equipment financing subsidiary. Furthermore, this transaction generates meaningful earnings accretion without diluting our capital ratios, which will continue to provide us with tremendous strategic flexibility in today's volatile markets."
Financial Federal, an equipment finance company, is a lender to middle-market businesses across the U.S. The company focuses on general construction, road and infrastructure construction and repair, road transportation and refuse industries. It has $1.5 billion in assets with about 200 employees.
People's United said that the deal significantly expands highly profitable equipment finance business. It also combines its significant excess liquidity and low cost funding with a premier asset generation platform.
People's United expects the transaction to be significantly accretive to operating earnings in 2010 and an IRR greater than 20%.
Given Financial Federal's significant excess capital, the transaction is expected to have a slight positive impact on People's United's capital levels on a pro forma basis.
Under the deal, which has been approved by boards' of both companies', Financial Federal shareholders will receive $11.27 in cash and one share of People's United common stock.
Based on the closing price of People's United on November 20, the transaction is valued at $27.74 per Financial Federal share. The actual value per Financial Federal share on consummation of the acquisition will depend on the share price of People's United at that time.
The transaction is expected to be tax-free for Financial Federal shareholders. The deal includes a termination fee of $26 million, to be paid if the agreement fails.
Morgan Stanley acted as exclusive financial advisor to People's United and Simpson Thacher & Bartlett LLP acted as legal counsel. Keefe Bruyette & Woods acted as exclusive financial advisor to Financial Federal and Covington & Burling LLP served as legal counsel.
People's United is currently trading at $16.16, down 31 cents or 1.88% on a volume of 6.13 million shares. Financial Federal is currently trading at $26.92, up $6.37 or 31.00% on a volume of 3.36 million shares.
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