Saturday, August 14, 2021

People's United Financial Closing Out With Some Soft Notes

 

The pending acquisition of People’s United Financial (PBCT) by M&T Bank (MTB) is far and away the most important driver for PBCT shares now, and with shareholder approval in hand, all that remains is regulatory approval. Given that there’s no reason to expect regulators to block the deal, investors can reasonably expect a close before year end – likely early in Q4, though an earlier close would be at least a possibility.

I continue to believe that that the acquisition by M&T Bank is a good outcome for People’s United shareholders. It’s inarguable that M&T Bank shares have declined since the merger announcement (by about 7%), but I believe M&T Bank shares are undervalued by a market more focused on near-term pre-provision earnings leverage than longer-term opportunities to drive cost and lending synergies from the People’s United deal and to boost lending share in core markets by leveraging IT-enabled services that smaller community banks cannot match.

Based on my short-term fair value estimates of M&T Bank, I believe People’s United shares are worth around $16.50 to $17.30, with People’s United offering a very modest (around 1%) discount to the implied value of the deal.


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People's United Financial Closing Out With Some Soft Notes

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