updated 2/5/2007 8:16:18 AM ET 2007-02-05T13:16:18

Financial services company State Street Corp. said Monday it is buying Investors Financial Services Corp. in a stock deal worth about $4.5 billion.

Under terms of the transaction, Investors Financial shareholders will receive 0.906 shares of State Street stock for each share of Investors Financial stock held. Based on State Street's $71.75 closing price Friday, the deal values Investors Financial at $65.01 per share, representing a 39 percent premium to the company's closing stock price of $46.95 Friday on the Nasdaq.

Approximately 62 million State Street shares will be issued in the deal. The boards of both companies have approved the deal.

Boston-based Investors Financial Services provides investment services including mutual fund, offshore and hedge fund servicing, custody, securities finance, cash management, foreign exchange and transition management for $2.2 trillion in assets.

The transaction is expected to dilute State Street's operating earnings in 2007, be neutral to 2008 earnings on an operating basis, add to earnings in 2008 on a cash basis and to operating earnings in 2009, based on anticipated pre-tax cost savings of about $345-$365 million during the first two years after closing.

The savings are expected mainly from technology, staffing and real estate consolidations, State Street said. The company also forecasts pre-tax restructuring charges of $625 to $675 million.

The deal is expected to close in the third quarter, subject to stockholder and regulatory approval. State Street will have more than $14 trillion in assets under custody, including $3.5 trillion in mutual fund assets under administration, when the transaction is complete.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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