PCSB
Financial in Yorktown Heights, N.Y., fielded acquisition offers from three
banks before deciding to deal exclusively with Brookline Bancorp in Boston.
The $8.6
billion-asset Brookline agreed to buy the
$2 billion-asset PCSB in May for $313 million in cash and stock.
PCSB
decided to seriously consider selling in November when its board assessed
challenges generating organic growth, the need to “invest significantly” in IT
and other infrastructure, and the bank’s scarcity value in its core markets,
according to a
regulatory filing tied to Brookline’s pending acquisition.
The
board started culling a list of potential acquirers at its December meeting.
Joseph
Roberto, PCSB’s chairman, president and CEO, held a virtual meeting with the
CEO of a Northeastern bank on Dec. 28. The bank, which had expressed an
interest in buying PCSB in the past, reiterated its interest during the
discussion.
The
unnamed bank eventually determined that it wasn’t in a position to pursue merger
discussions at a valuation it believed PCSB would consider attractive.
Robert
met with the leader of another Northeastern bank on Jan. 18. Three days later,
he met with Carl Carlson, Brookline’s co-president and chief financial officer.
During a
Jan. 26 meeting, PCSB’s board reviewed 16 institutions that were identified as
potential acquirers. The bank’s investment bank contacted 12 of the banks;
six signed confidentiality agreements and three ended up sending nonbinding letters
of interest.
Brookline
initially pitched a 60% stock deal with a fixed exchange ratio of 1.3233 shares
of Brookline stock for each PCSB share and $21.50 a share in cash based on a
price of $21.50 a share. Brookline was also willing to let PCSB operate as a
standalone bank unit.
The
other companies’ offers had “lower nominal pricing terms” and plans to merge
PCSB into their existing banks.
The PCSB board, on two occasions, pressed the suitors to improve their offers.
One of the companies
revised its offer, but the terms were still lower than what Brookline proposed.
Brookline
revised its offer twice.
On
April 8, Brookline increased the stock exchange ratio slightly, to 1.3284,
and the cash consideration to $21.60 a share. It also increased the amount of
stock to 65% from 60%.
Four days later, Brookline increased the cash consideration to $22 a
share and reverted to 60% stock. The exchange ratio remained 1.3284.
Following
a "lengthy discussion," the board authorized entering into an exclusivity agreement
with Brookline. PCSB and Brookline agreed to negotiate exclusively until May 31.
The
initial merger agreement was sent to PCSB on May 2. The parties exchanged drafts
of the agreement between May 9 and May 22.
PCSB’s
board unanimously approved the merger on May 23, and the deal was announced the
next day.
The deal, which is expected
to close in the second half of this year, priced PCSB at 117.6% of its tangible
book value.
"This transaction represents a unique
opportunity for Brookline to expand its banking operations into one of the
country’s largest deposit markets through the acquisition of a complimentary
commercial banking organization,” Paul Perrault, Brookline’s chairman and CEO,
said in the release.
Brookline expects the deal to be 13% accretive
to its earnings per share. It should take the company less than four years to
earn back an expected 7.5% dilution to its tangible book value.
Brookline said it plans to cut about 30% of
PCSB’s annual noninterest expenses, or about $10.8 million. The company expects
to incur $21.4 million of merger-related charges.
Michael Goldrick, PCSB’s chief lending officer,
will become president and CEO of PCSB Bank. One PCSB director will join
Brookline’s board.
Goldrick will receive an initial base salary of
$350,000 and will be eligible for an annual incentive payment of up to 60% of
his base salary, according to the recent filing.
Roberto
agreed to serve as a consultant to Brookline. He will receive $30,000 a month
for each of the first six months after the deal closes.
