The Bank Slate


How New York Community-Flagstar materialized

We’re trying a new format to make content about a merger’s background easier to digest. Rather than provide a lengthy article based of the regulatory filing, we’ re going to include bullet points highlighting key aspects of a deal.

First, the proposed deal’s financials:

New York Community in Westbury agreed on April 26 to buy Flagstar Bancorp in Troy, Mich., for $2.6 billion in a deal that is expected to close by the end of this year. The deal valued the $29.5 billion-asset Flagstar at 115% of its tangible book value.

The $58 billion-asset New York Community plans to cut about 8% of the combined company’s annual noninterest expenses. It expects to incur $220 million of merger-related expenses. The deal should be 16% accretive to New York Community’s earnings per share and 3.5% accretive to tangible book value per share. 

Thomas Cangemi is set to serve as president and CEO, while Alessandro DiNello, Flagstar’s president and CEO, would become nonexecutive chairman. Eight of the company’s 12 directors will come from New York Community.

And interesting observations from the S-4 filing

  • The companies held preliminary merger talks from late April to early June 2019 but they “did not develop into any more formal discussions or negotiations.” 
  • Discussions resumed in January 2021 after Cangemi called DiNello. They had an in-person meeting on March 8.
  • New York Community’s initial offer included an all-stock merger with a fixed exchange ratio and keeping the Flagstar brand for Flagstar mortgage business. 
  • Flagstar had a transactions committee in place to monitor negotiations. 
  • New York Community updated its offer on March 26 to include a 10% premium to Flagstar’s stock price, as long as the deal was “meaningfully” accretive to tangible book value, and a plan to have Cangemi remain chairman, president and CEO after closing. 
  • Flagstar in early April pushed to have its directors “proportionately represented” on New York Community’s board with “key positions” in areas such as risk and oversight. 
  • Cangemi and DiNello reached an agreement in early April where DiNello would serve as chairman for two years and David Treadwell, a Flagstar director, would chair the risk assessment committee. Four Flagstar directors would to join New York Community’s board. 
  • New York Community pledged to maintain and continue Flagstar’s mortgage and banking businesses, and it committed to employment agreements for senior management. 
  • The boards approved the merger on April 24. It was announced two days later.
  • DiNello is set to receive $6 million for agreeing to three-year non-compete and non-solicitation agreements.

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