KeyCorp.’s KEY deal to acquire Buffalo, NY-based First Niagara Financial Group Inc. FNFG may have to wait a bit longer to get regulatory approvals. The Federal Reserve has extended the public comment period by a month till Jan 31, 2016.
In a statement, the Fed stated, “The comment period is being extended to allow interested persons more time to review and provide comments concerning the proposal.”
The Deal in Brief
The stock-and-cash deal, worth approximately $4.1 billion, wasannounced in October. KeyCorp expects the deal to be accretive to earnings in 2017, excluding merger and integration costs of approximately $550 million. Also, the company anticipates saving $400 million in annual expenses.
Moreover, upon closure, the combined entity will enjoy a diverse footprint across markets in the Northeast, Mid-Atlantic, Midwest and Pacific Northwest. KeyCorp will have roughly $99.8 billion in deposits, $83.6 billion in loans and 1,366 branches across 15 states.
While KeyCorp and First Niagara share overlapping operations that will strengthen the former’s revenue base, KeyCorp did not quantify the top-line benefit. During the deal presentation, the company stated that it will “drive revenue synergies by deploying stronger combined product set to existing clients.”
Reasons for Extension
Senator Charles E. Schumer, a Democrat from New York, in a letter to the Fed on Dec 20 had urged for more time for people to comment on the transaction. The senator also wanted the Fed to consider holding public discussion over concerns pertaining to the economic impact of the deal across the Upstate New York region. Further, the prior comment period overlapped the holiday season.
Schumer said in a statement, “The proposed purchase of First Niagara by KeyCorp, another bank with a large overlapping upstate presence, should be a giant red flag for federal regulators. Because the potential economic and job force impacts are so significant, it is essential that federal regulators that must judge this proposed merger allow members of these local communities — those who will be the most impacted — to have their voices heard.”
Immediately upon announcement of the deal, Schumer had raised concerns over significant overlapping of operations, which could lead to job losses and negatively impact the regional economy. Also, KeyCorp had mentioned that over 30% of First Niagara branches are within a couple of miles of its own branches.
Therefore, it is clear that the acquisition will likely have a significant adverse impact on employment and competitiveness in the region. Notably, KeyCorp had stated that deal is projected to save $400 million costs per annum.
Final Thoughts
Despite cost savings and revenue synergies, we believe KeyCorp will have a challenging time convincing the public about the potential long-term benefits of the deal. Till the deal gets approval from regulators, it’s a wait and see situation for investors and the common public.
Currently, both KeyCorp and First Niagara carry a Zacks Rank #3 (Hold). Some better-ranked banks include The PNC Financial Services Group, Inc. PNC and Great Southern Bancorp Inc. GSBC. Both these stocks hold a Zacks Rank #2 (Buy).
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