Banking On Relationships
Times are tough, and any business that finds itself for sale risks having a smaller pool of suitors and a discounted value. In other words, it’s a buyer’s market.
It was therefore surprising to watch a heated competition erupt between no fewer than three bidders for the recently sold Commonwealth National Bank of Worcester. Not only will stockholders receive $10.75 a share from West Springfield-based United Financial Bancorp, holding company for United Bank, a dramatic uptick from its $3.00 share price as recently as April, but the bank becomes part of an institution that will invest in growing the bank’s regional footprint.
Interested Parties
This is a good deal for stockholders, a good deal for bank employees who become part of a larger but still growth oriented organization, and a good deal for the community, as a strong new regional player adds competition to the marketplace. Founded in 2001, Commonwealth finished 2008 with a $1.6 million loss due primarily to its investment in Fannie Mae and Freddie Mac and coverage for bad loans that increased from $80,000 in 2007 to $1.4 million last year.
However, what the three competing banks saw in Commonwealth is a strong franchise and a very manageable community bank that opened six branches in five years in and around the second largest city in New England. Commonwealth also earned respect for its steady asset growth and focus on the greater Worcester community. The bank currently has assets of about $300 million.
The tangible evidence of these strengths is the ultimate share price of $10.75 per share or about $25 million that the United deal has on the table for Commonwealth. This is clearly superior to the $8.50 per share offer from Pittsfield-based Berkshire Bank that started the bidding war for Commonwealth in the first place.
By the time United made its first offer, Commonwealth had already signed an agreement to be acquired by Berkshire. To strike the deal with United, Commonwealth absorbs a termination fee of close to $1 million, but by increasing share price from Berkshire’s initial $8.50 to $10.75, they more than make up the difference.
The escalation in price as Berkshire and United wooed Commonwealth’s shareholders is evidence that Commonwealth was not just an undervalued opportunity, but a franchise worth competing for.
Another interesting element of the deal is that it brings a former Worcester area banker back to his home turf. United President and CEO Richard Collins spent nearly 15 years at Mechanics Bank in Worcester and was president of the bank when he left for First Massachusetts Bank in 1996. Commonwealth President and CEO Charles Valade worked with Collins at both Mechanics and First Massachusetts.
This past relationship bodes well for leadership continuity in the newly acquired institution.
When Commonwealth was founded, it was the first new bank in Worcester in 15 years. Part of the founders’ strategy was hiring long-time Worcester bankers like Valade. Knowing the turf and the players in this region will give United a head start in enhancing the value of the Commonwealth franchise.
In addition to leadership that understands the local market, Commonwealth’s customers get the benefit of longstanding financial strength and the availability of a wider array of services. United was established in 1882 and has $1.24 billion in assets.
This merger clearly adds up to a win for Commonwealth, United and our region.
WBJ Web Partners
Most Recent
Most Recent
0 Comments