Remember, First Niagara Is Worth $13/Share Amid Buyout Rumors

Various media sources, including The Wall Street Journal, reported on Thursday that KeyCorp is in advanced talks to acquire First Niagara Financial Group.

The deal would combine two regional banks, and First Niagara's near $4 billion valuation would make a transaction one of the biggest within the financial sector seen this year. The Wall Street Journal noted that a deal could be announced as early as Friday, assuming the talks don't fall apart.

Analyst Responds

Laurie Havener Hunsicker is an analyst at Compass Point Research & Trading and commented in a note on October 23 that First Niagara's shares could be worth approximately $13 per share using a core deposit premium analysis in a takeout scenario.

Related Link: Compass Point's Laurie Havener Hunsicker Says "No Comment" On Current DJ Rumor

Havener Hunsicker noted that the company's third-quarter conference call (October 23) confirmed her thoughts that First Niagara is a "likely sale candidate," as the company's core systems development work has been delayed. At a minimum, this implies that the company's board is "seriously" reworking its planned $200 to $250 million infrastructure spend. On the other hand, this would suggest that another bank would take on this project as part of an acquisition.

Havener Hunsicker also highlighted what the company's CEO Gary Crosby said during the call, "We work very closely with our board at assessing strategies, different strategies, to enhance shareholder value. that is an ongoing process [...] all within the context of this very difficult operating environment."

To that, the analyst commented, "Simply put, it's what they didn't say, in terms of confirming the desire to stay independent, that reconfirms out belief that First Niagara is for sale."

Looking Forward

Finally, the analyst stated that potential acquirers are seeking "deposit-rich" franchises. First Niagara offers an "attractive footprint" with a "clean' balance sheet and a "desirable" loan/deposit ratio of 82 percent (core mix of 86 percent, costing 14 basis points).

Shares were reiterated with a Buy rating and $12 price target, which assumes a $13 sale of the bank that is discounted to reflect a time lag (i.e, 18+ months).