The acquisition is Portland, Maine-based TD Banknorth's first major purchase since Canada's Toronto-Dominion Bank paid more than $3 billion for a 51 percent stake in the company four months ago.
It will enable TD Banknorth to add 204 branches in New Jersey, Pennsylvania, Connecticut and New York. The purchase also extends the recent consolidation among several Northeast U.S. banks, which analysts expect to continue.
The terms value Mahwah, N.J.-based Hudson United at $42.78 per share, a 14 percent premium over its Monday closing price. About 51 percent of the purchase price will be paid in TD Banknorth stock and 49 percent in cash.
"The transaction carries a rich price," said Gerard Cassidy, an analyst at RBC Capital Markets in Portland. "Banknorth is paying 4.5 times tangible book value. On an earnings basis, however, it is paying 15.9 times estimated 2005 earnings, which is below average for recent bank purchases."
Several non-U.S. banks have eyed the United States for growth, including Royal Bank of Canada and Bank of Montreal, which owns Chicago's Harris Bank, as well as Britain's HSBC Holdings Plc (HBC) and Royal Bank of Scotland Plc.
Hudson United shares rose $4.20, or 11.2 percent, to $41.70, while TD Banknorth shares fell 65 cents to $29.31. Toronto-Dominion shares fell 2 cents to C$55.05 on the Toronto Stock Exchange.
Following the purchase, TD Banknorth would have about 590 branches, 751 automated teller machines and more than $26 billion of deposits in eight Northeast U.S. states.
Hudson United had about $6.3 billion of deposits and $8.9 billion of assets as of March 31. About half of the company's branches are in New Jersey.
"Banknorth has been given a mandate by Toronto-Dominion to expand through acquisition," Cassidy said. "Hudson United has been for sale for about three years. Banknorth has historically been unable to buy it, but its new parent gave it the ammunition."
The purchase is expected to close in the first quarter of 2006, pending shareholder and regulatory approval.
Toronto-Dominion in June agreed to sell its TD Waterhouse USA online brokerage to Ameritrade Holding Corp. (AMTD) for $2.9 billion in stock. Toronto-Dominion would retain a 32 percent stake in the merged company, TD Ameritrade.
TD Banknorth said it will finance the cash portion of the purchase price by selling 29.6 million shares at $31.79 each to Toronto-Dominion, which has indicated an intent to maintain or possibly increase its stake.
TD Banknorth expects the transaction to reduce profit per share by 1 cent in 2006, and increase it by 6 cents in 2007. Two Hudson United directors will be added to TD Banknorth's board of directors.
"Toronto-Dominion wants to grow its U.S. banking franchise," Cassidy said. "There will be a digestion phase after a transaction of this size. I would expect it to take a breather before it tries another deal of this size."
Keefe, Bruyette and Woods and the law firm Pitney Hardin LLP advised Hudson United. Lehman Brothers Inc. and the law firm Elias, Matz, Tiernan & Herrick LLP advised TD Banknorth.