What happened

Shares of First Connecticut Bancorp Inc. (NASDAQ: FBNK) are soaring today, rising by more than 19% as of 11:00 a.m. EDT on news of an acquisition. The parent company of Farmington Bank will be acquired by People's United Financial (NASDAQ:PBCT) in an all-stock transaction valued at $544 million.

So what

Terms of the deal call for First Connecticut Bancorp shareholders to receive 1.725 shares of People's United Financial for every share of First Connecticut they own. 

Federal Reserve building

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People's United Financial sees opportunities to generate attractive returns from the acquisition from cost cuts when the two banks are combined. The company said in a presentation that it believes it can eliminate 50% of First Connecticut's non-interest expenses by consolidating branches and eliminating duplicated administrative costs. Notably, 71% of First Connecticut's branches are within two miles of a People's branch, and all are within five miles of an existing People's location.

Upon closing the deal, People's United Financial will become the second-largest bank in Connecticut, behind only Bank of America, with 14.5% deposit market share in the state. First Connecticut has 28 branches in total, 26 in Connecticut and two in Massachusetts.

Now what

The acquirer said that the deal values First Connecticut at 17.4 times estimated 2019 earnings, though the multiple declines to just nine times estimated earnings when expected cost savings are included. In addition, People's United expects to generate revenue synergies from increased lending and cross-selling opportunities, though this benefit wasn't included in the reported valuation metrics.

The acquisition is expected to close in the fourth quarter of 2018. Wall Street sees this transaction as almost certain to close as outlined, as First Connecticut Bancorp shares are now priced at a valuation that reflects the full value of the 1.725 shares of People's United that shareholders will receive at closing.

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