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.