Royal Bank of Scotland Plc, the No. 2 bank in the United Kingdom, Tuesday said it agreed to buy Charter One Financial Inc. for $10.5 billion, expanding into six Northeast and Midwest U.S. states.
The all-cash transaction will significantly extend the footprint of Royal Bank’s Citizens Financial Group Inc. unit beyond its current New England and Mid-Atlantic base.
It will also give Citizens one of the 10 largest U.S. commercial banking operations, with nearly $129 billion of assets, Royal Bank said. The purchase also means about 25 percent of Edinburgh-based Royal Bank’s profit will be generated in the United States.
“This is a highly logical and very natural acquisition for Citizens to make,” Royal Bank Chief Executive Fred Goodwin said in a statement. “As well as making good financial sense in its own right, it opens up another interesting range of options for Citizens to maintain their strong growth momentum.”
Royal Bank agreed to pay $44.50 per share for Charter One, a 24 percent premium over Charter One’s Tuesday closing price on the New York Stock Exchange. The shares rose 56 cents to $35.95 on Tuesday.
Citizens, based in Providence, Rhode Island, has more than 880 banking offices and 15,500 employees in seven states, including Rhode Island, Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey and Pennsylvania.
Charter One, which is based in Cleveland, said it has $43 billion of assets, 616 banking offices and 8,400 employees in Ohio, Illinois, Indiana, Michigan, New York and Vermont, as well as Connecticut, Massachusetts and Pennsylvania.
In a statement, Royal Bank said “there is no need” for it to sell parts of Charter One, or to close branches.
The purchase is expected to close in the fourth quarter, subject to regulatory approval, Charter One said.
Charter One’s stock had climbed in recent days on rumors the bank was in serious talks to be bought.
The bank had worked to evolve from a thrift to a commercial bank focused on consumers and small to mid-sized companies, but left the door open to a takeover for the right price.
Royal Bank has been scouring the United States for acquisitions, and Citizens has announced 26 banking acquisitions since Royal Bank bought it in 1988.
The Charter One purchase is easily Royal Bank’s largest in the country. The company’s previous biggest U.S. acquisition was its $2.2 billion purchase of Mellon Financial Corp.’s retail branch network in 2001.
In February, Royal Bank entered the U.S. credit card market by buying the card portfolio of Connecticut’s People’s Bank for $360 million.
Royal Bank said it plans to issue about 2.5 billion pounds ($4.5 billion) of shares to help pay for Charter One, and expects $185 million of annual cost savings after three years.
Royal Bank became the U.K.’s No. 2 bank in 2000 when it bought NatWest, which was more than twice its size, for 21 billion pounds after a hostile takeover battle. The largest U.K. bank is HSBC Holdings Plc.
Lehman Brothers Inc. advised Charter One on the transaction, while Merrill Lynch & Co. advised Royal Bank, people close to the sale said.
Royal Bank said Merrill Lynch is arranging the share offering.