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Valley National (VLY) to Buy Oritani, Expand in New Jersey

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With an aim to further expand its presence in New Jersey, Valley National Bancorp (VLY - Free Report) has announced a deal to acquire Oritani Financial Corp. (ORIT - Free Report) for $740 million. The all-stock transaction, expected to close in fourth-quarter 2019, is subject to regulatory approvals, consent of shareholders of both the companies and other customary conditions.

The deal will double Valley National’s market share in Bergen County and enhance its presence in Hudson County. Also, it will strengthen the company’s capital base and hasten “previously disclosed strategic initiatives.” Valley National had previously announced the sale-and-leaseback transaction, and the Branch Transformation plan.

Ira Robbins, Valley National's President & CEO said, “This capital-enriching transaction will enable Valley to continue to focus on improving the growth profile throughout its entire franchise, while providing enhanced products, services and delivery channels to Oritani’s existing customer base.”

Terms & Benefits

Per the terms of the agreement, shareholders of Oritani Financial will receive 1.60 shares of Valley National for each Oritani Financial share they own.

Notably, Oritani Financial’s dividend payout policy for the current quarter will not be impacted by the deal. Any subsequent dividend announcement/payments by the company will be limited to the current per share amount paid by Valley National, with the exchange adjusted to 18 cents per share until the completion of the deal.

Moreover, Kevin Lynch, chairman, president & CEO of Oritani Financial will join the board of directors of Valley National, following the closure of the agreement.

The combined company will have roughly $38 billion in assets, $30 billion in loans and $29 billion in deposits. Also, there will be 245 branches across New Jersey, New York, Florida and Alabama.

At present, Valley National is projecting 50% cost savings, “in addition to those related to legacy Oritani benefit plans.” Nonetheless, the company has not made any assumption of cost synergies owing branch closures, though both the companies have “100% of their respective branches within a 3-mile radius of a competing branch.”

Concurrent with the closure of transaction, Valley National intends to restructure nearly $635 million worth of higher cost Federal Home Loan Bank borrowings. This initiative, along with the acquisition, will be immediately accretive to Valley National’s earnings and tangible book value. Also, the bank’s Tier 1 Common Equity ratio will improve 50 basis points.  

Our Take

Valley National continues to witness steady revenue improvement, driven by organic and inorganic growth efforts. Over the years, the bank has expanded its footprint in New Jersey, Florida and New York through buyouts. These deals have been earnings accretive and expanded market share.

Given the strong balance sheet position, this Zacks Rank #3 (Hold) company is well positioned to grow through opportunistic deals.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

So far this year, shares of Valley National have rallied 14%, outperforming the industry’s rise of 8.7%.

Of late, consolidation in the banking sector is on the rise, driven by easing of stringent regulations and lower corporate tax rates that freed up capital. Several mid-size banks, including Fifth Third Bancorp (FITB - Free Report) , SVB Financial Group and Prosperity Bancshares, Inc. (PB - Free Report) are undertaking opportunistic buyouts that will not only lead to geographic expansion but also help diversify revenue base.

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