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Valley National (VLY) Gets Regulatory Nod for Oritani Deal

Zacks Equity Research

Valley National Bancorp VLY has received regulatory approval from the Office of the Comptroller of the Currency (“OCC”) to complete the acquisition of Oritani Financial Corp. ORIT for $740 million. The merger is subject to regulatory approval by the Board of Governors of the Federal Reserve System among other conditions, including approval by shareholders of both companies.

With an aim to further expand presence in New Jersey, Valley National had announced a deal to acquire Oritani Financial in June. The all-stock transaction is expected to close in fourth-quarter 2019.

Terms & Benefits

At the time of announcement, it was agreed that shareholders of Oritani Financial will receive 1.60 shares of Valley National for each Oritani Financial share they own.

Also, it was stated that Oritani Financial’s dividend payout policy for the quarter would not be impacted by the deal.

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

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

Concurrent with the closure of the transaction, Valley National intends to restructure nearly $635 million worth of higher-cost Federal Home Loan Bank borrowings. The 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 likely improve 50 basis points.

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.

The deal is expected to 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.

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 accretive to earnings and have expanded market share.

So far this year, shares of Valley National have rallied 16.7%, outperforming the industry’s growth of 3.1%.

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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-sized banks, including Fifth Third Bancorp FITB, SVB Financial Group and Prosperity Bancshares, Inc. PB are undertaking opportunistic buyouts that will not only lead to geographic expansion but also help diversify revenue base.

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