Prudential Bancorp juggled legal settlement, M&A talks

Prudential Bancorp in Philadelphia had to negotiate settlement of a legal issue as it finalized an agreement to be sold to Fulton Financial in Lancaster, Pa. 

The $26 billion-asset Fulton stipulated as part of its merger talks that the $1.1 billion-asset Prudential needed to resolve all outstanding issues associated with borrower litigation, according to a regulatory filing tied to the pending acquisition. 

The filing also revealed that, on several instances going back to 2017, Prudential tried to find a buyer or a merger-of-equals partner. 

Prudential’s initial effort to sell took place in April 2017, when its investment bank contacted 11 potential partners. Six signed nondisclosure agreements, with two submitting indications of interest. One of the bids was below Prudential’s expectations; the other was withdrawn.

Fulton, which spent years dealing with a series of regulatory issues, did not participate in the April 2017 process. 

Over the next two years, Prudential had merger discussions with three financial institutions, including a Pennsylvania bank that was interested in a merger-of-equals and two New Jersey institutions that were interested in a more traditional merger. 

The Pennsylvania bank ended discussions in September 2017 after expressing reservations about Prudential’s potential legal liability stemming from a lawsuit where a borrower alleged $27 million of damages. 

Prudential took a step back from merger talks when the pandemic took root in the United States. The company began revisiting the process in early 2021, citing historically low interest rates, the rising costs of regulation and compliance and an increased need to diversify and improve the digital experience, the filing said. 

Prudential President and CEO Dennis Pollack met with the president and CEO of an unnamed bank on May 4, 2021, followed by a meeting with Philip Wenger, Fulton’s chairman, president and CEO, three days later. Informal talks among these banks took place for several months; nondisclosure agreements were signed in October. 

Fulton sent an all-stock offer in November 2021 – with a potential cash component – that valued Prudential at $18 to $20 a share. The other bank offered $15.50 to $16.50 a share with a combination of cash and stock. 

Prudential’s board decided during a Nov. 17, 2021, meeting to negotiate with Fulton. They agreed to 60 days of exclusivity. 

Fulton’s concerns with the lender liability litigation surfaced in January. Wenger indicated that Fulton was willing to offer $19 a share if Prudential could completely resolve the liability claim. The merger consideration would be modified based on the financial terms of the settlement. 

By February, Prudential and the other litigant were close to negotiating a settlement where the bank would pay the other party $8.3 million in cash. Those efforts convinced Fulton to extend the exclusivity period for the merger talks.

Fulton still had reservations tied to a related legal matter involving the Prudential borrower’s largest shareholder. Fulton’s legal advisers indicated that all aspects of the litigation needed to be resolved. 

Prudential and the various parties to the shareholder litigation executed at settlement agreement in late February. As a result, Fulton proposed paying $18.25 a share in cash and stock. 

Prudential said the settlement will likely lead to a pretax charge of about $9.7 million, including the benefit of receiving about $1.9 million its bank’s insurance carrier. 

Directors of Prudential and Fulton approved the merger on March 1. It was announced the next day. The deal, Fulton’s first since 2006, is expected to close in the third quarter. 

“I have shared with investors Fulton’s desire to be more active in mergers and acquisitions of companies that are a good fit for us – strategically, culturally and geographically,” Wenger said in a release announcing the deal. 

Fulton expects the deal to be 3.5% accretive in 2023. It should take a little over a year for the company to earn back an estimated 1% dilution to its tangible book value. 

Fulton plans to cut about 45% of Prudential's annual noninterest expenses; it expects to incur $30.5 million of merger-related charges.