Well, that didn't take very long. Less than a week after media reports had it that Astoria Financial (NYSE:AF) was exploring a sale due to pressure from an activist investor, the banking group made a deal to be sold.

The buyer is fellow Empire State lender New York Community Bancorp (NYSE:NYCB), which will purchase it for a mix of cash and stock totaling around $2 billion, the companies said in a joint announcement at the end of October. That's a big number, but is Astoria worth it?


The latest shopping spree
Astoria Financial investors will receive one share of New York Community Bancorp stock, plus $0.50 in cash, for each of their shares. Following that, Astoria Financial will be merged into its new parent.

All told, that price tallies to $19.66 per Astoria Financial share, several dollars above the bank's most recent closing price of just under $16.

The move is entirely in character for New York Community Bancorp, which has grown to its present size largely through acquisitions. Its root business -- providing mortgages for multi-family buildings in New York City -- is solid, but raises the bank's cost of funds and doesn't provide enormous room for growth. Hence its acquisitiveness.

Astoria Financial is as complementary a banking group as its buyer is likely to find. Named after a neighborhood in Queens, it too focuses on real-estate lending in and around New York City. Maybe that's why New York Community Bancorp is willing to dig deep into the vault to pay for it.

Additionally, the bank said it will "reposition" its balance sheet in advance of the merger, pre-paying around $10 billion in wholesale borrowings. This will trigger a one-time after tax prepayment charge of around $614 million, which will be covered by issuing new stock.

The acquirer will save money by cutting back on its dividend; its long-standing (and generous) quarterly $0.25 per share payout is to be reduced to $0.17 beginning in the first quarter of next year.

Financial sacrifice
Some or all of those factors helped push New York Community Bancorp's stock down precipitously in the wake of the announcement.

This is understandable. That dividend was a thing of beauty, yielding well over 5%. Even at the depressed current stock price, the figure for the adjusted dividend will be around 4%.

Further, the acquisition bulks up New York Community Bank's assets enough for it to be considered a "systemically important financial institution." Entering that category will require it to get Fed approval for its capital allocation plans -- including its dividend.

Also, Astoria Financial isn't a particularly dynamic lender. Assets and interest income were both down on a year-over-year basis in the bank's Q3, while its 74% efficiency ratio is high for the sector, with a sub-60% range being the target for most well-run banks.

In short, New York Community Bancorp's asset-to-be is complementary to its business, but I'm not convinced that compatibility justifies what the acquirer is giving up to swallow the purchase.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.