M&T, Provident price questioned; Tower Group, CastlePoint vote set; Ocwen moves to spin off unit

By Cristal Cody

New York, Dec. 19 - M&T Bank Corp. said Friday it will acquire Provident Bankshares Corp. for $401 million in an all-stock transaction, an amount one analyst considers overpaid.

In other deals, Tower Group Inc. and CastlePoint Holdings Ltd. set the dates for shareholders to vote on the $490 million cash and stock acquisition.

Also coming up, loan servicing firm Ocwen Financial Corp. plans to spin off its knowledge-based business process outsourcing operation, Ocwen Solutions, as a stand-alone company.

Looking to Wall Street Friday, confidence was mixed with the $17.4 billion rescue loan package for the auto industry approved by the Bush administration.

The Dow Jones Industrial Average fell 25.88 points, or 0.30%, to 8,579.11.

Meanwhile, the Standard & Poor's 500 index climbed 2.60, or 0.29%, to 887.88 and the Nasdaq Composite index rose 11.95, or 0.77%, to 1,564.32.

Provident falls

Buffalo, N.Y.-based M&T Bank will pay Provident shareholders 0.171625 of a share of M&T Bank for each share of Provident they own.

The deal is based on M&T's closing stock price of $61.18 on Tuesday and values Provident shares at $10.50 each.

Shares of Provident leaped $3.53, or 60.86%, to close at $9.33. The stock has traded as low as $4.52 and as high as $23.34 in the past year.

M&T shares fell $3.76, or 6.3%, to close Friday at $55.96.

The "overpaid" deal is hard to figure, an analyst said Friday.

"It's a good deal if you hold Provident for getting $10.50 in stock," the market analyst said. "I have a hard time with the pricing and think it was maybe overpaid given where Provident was and what was going on with the balance sheet."

The analyst questioned how M&T could pay $10.50 a share, even if it's an all-stock deal.

"In this environment, given what's happened with the deals that have gone down so far, I don't know how they paid a premium," the analyst said.

"Granted it's an all-stock deal and probably is a good deal long-term for M&T, but the pricing leaves me scratching my head. If you look at deals that have taken place so far, there's been very little in the way of premiums."

Baltimore-based Provident didn't have many choices.

"While Provident has performed well in this difficult environment, in the quarters ahead, we would face significant challenges, particularly in our investment portfolio," Gary Geisel, Provident's chairman and chief executive officer, said in a statement.

The deal, expected to close late in the second quarter, must receive approval from Provident shareholders and regulatory agencies.

M&T spokesman Jean Hill said Friday that clearance will be needed from the New York State Banking Department, the Maryland State Banking Department, the Federal Reserve Bank of New York and the Federal Reserve Bank of the Richmond, Va., district.

"We'll be waiting for approvals now," she said.

Tower, CastlePoint set merger vote

Bermuda-based CastlePoint said shareholders will vote Jan. 27 on the acquisition by the Tower Group.

Tower also said Friday that its stockholders will vote Jan. 28 on whether to issue shares as part of the transaction.

Depending on stock prices at the time of closing, CastlePoint shareholders will receive 0.47 of a share of Tower's common stock and $1.83 in cash per share of CastlePoint's stock. The offer is set to equal $12.68 per CastlePoint share.

Shares of CastlePoint rose 92 cents, or 7.74%, to close at $12.80 Friday.

Tower Group shares also spiked $1.95, or 8.37%, to close at $25.24.

Thomas Song, Tower Group's managing vice president, told Prospect News that no closing date has been selected.

"One of the main conditions to closing is the shareholder vote. One might assume the closing would happen quickly thereafter," he said.

The companies said all regulatory approvals have been cleared, including receiving early termination of the waiting period by the Justice Department.

On Friday, the Securities and Exchange Commission declared the registration statement effective for the stock to be issued.

Ocwen splits business

Ocwen Solutions will be a stand-alone publicly traded company after the tax-free spin-off, a move that could set the company up for additional acquisitions.

"The separation will allow potential investors to choose between the contrasting business models of servicing and business process outsourcing as each is valued differently by the equity markets," William Erbey, Ocwen's chairman and CEO, said in a statement. "Another advantage is that Ocwen Solutions will have the option of offering its stock to potential acquisition targets."

Ocwen said it expects to file a registration statement by March 31 and the spin-off to be completed in the second quarter. The company serves the mortgage and consumer finance industries.

The deal's completion is subject to confirmation of the tax-free treatment and approvals from the SEC, according to an Ocwen spokesman.

Ocwen shares fell 3 cents, or 0.37%, to close Friday at $7.99.

Mentioned in this article:

CastlePoint Holdings Ltd. Nasdaq: CPHL

M&T Bank Corp. NYSE: MTB

Ocwen Financial Group Corp. NYSE: OCN

Provident Bankshares Corp. Nasdaq: PBKS

Tower Group Inc. Nasdaq: TWGP

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