Warburg Pincus & Co. portfolio company Dime Bancorp Inc., a unitary savings and loan holding company, last week announced that it will merge with Washington Mutual Inc. (WaMu), a national financial services company, in what may be one of the largest middle-market buyouts in recent memory.
The deal is at approximately $5.2 billion and gives WaMu a foothold in the Northeast. Under terms of the deal, Washington Mutual will pay $40.84 for each share of Dime Bancorp, which is about an 11% premium over Dime’s recent share price of $37.90. The cash component of the purchase price is $1.4 billion, with the rest to be paid through 92.3 million Washington Mutual shares. Dime shareholders can choose between cash or 1.05 Washington Mutual shares for each of their shares. The total value at closing may rise or fall based on the average per share price of Washington Mutual stock for a 10 day period prior to closing. The merger is expected to close in the first quarter of 2002.
Lehman Brothers and Goldman, Sachs & Co. acted as financial advisers to Washington Mutual, and Credit Suisse First Boston and Merrill Lynch & Co. acted as financial advisers to Dime.
The deal already has the approval of Warburg Pincus, The Dime’s largest shareholder. “Suffice it to say we’re really pleased,” said Kewsong Lee, a managing director at Warburg Pincus. “Dime shareholders have been rewarded because this company has had the ability to execute against its business plan.
Warburg Pincus invested $238 million in The Dime last July. “We met with management at a time when The Dime was under hostile attack and came to the conclusion that the franchise was terrific, and management and their business plan had a ton of potential, but all of this was underappreciated by the capital markets at the time,” Lee said.
Back then management was convinced they could drive more shareholders value by being independent and running their business, Lee said, adding that their view was 100% validated in hindsight with this transaction because the operating performance of the bank has been outstanding in the past year.
Washington Mutual initiated merger discussions with The Dime with Warburg Pincus having no involvement in ensuing talks between the two companies, Lee added.
The deal gives The Dime, which currently serves approximately 1 million households through 123 branches and 250 ATMs in the New York metropolitan area, access to Washington Mutual’s broader customer base. Washington Mutual stands to gain diversification in its mortgage business operations that is already present in nine other states.
“With this move, Washington Mutual…acquires a broad retail footprint to complement our existing mortgage business,” said Kerry Killinger, chairman, president, and CEO of Washington Mutual.
Larry Toal, CEO of The Dime, said “Our customers benefit because of Washington Mutual’s broader product line coupled with its focus on the consumer and small-to-medium sized businesses.”
Analysts also view the merger as positive for investors. In an interview, Salomon Smith Barney analyst Thomas O’Donnell said, “Washington Mutual paid a reasonable premium for the high-quality New York consumer banking franchise that also is a top 15 mortgage originator.”
Others view this as a stepping stone for Washington Mutual’s eventual Northeast expansion program. “This is their first step into the Northeast…I don’t for one minute think this is the last step they’re going to take,” said Paul Miller, an analyst at Friedman, Billings, Ramsey. “He [Killinger] wants to be the Wal-Mart of the retail banking segment,” Miller said.