M&T to Acquire Wilmington Trust for $351 Million

Wilmington Trust Corp., the 107-year- old du Pont family wealth manager that financed companies during the Great Depression, agreed to sell itself to M&T Bank Corp. for about half last week’s market value amid souring loans.

The bank, founded by entrepreneur and U.S. Senator T. Coleman du Pont in 1903, will be acquired for $351 million in a stock deal valuing its shares at $3.84 apiece, 46 percent less than last week’s closing price, the companies said yesterday.

The sale ends independence for a firm that has touted its du Pont heritage for a century and manages about $58.4 billion, including family members’ wealth. It was forced to find a buyer as an economic slump undercut some of the lender’s strongest borrowers, Wilmington Chief Executive Officer Donald Foley said.

Wilmington “was certainly the leading bank in the state of Delaware -- a dominant financial institution, known to be extremely well-run, relatively conservative in its policies,” said James Butkiewicz, a professor at the University of Delaware’s Alfred Lerner College of Business & Economics. “But it too has fallen on some hard times.”

The deal would give M&T the state’s largest depository and add wealth management and corporate services to boost fee income to 39 percent of total revenue from 34 percent, M&T Chief Financial Officer Rene Jones told reporters on a conference call yesterday. M&T, based in Buffalo, New York, has reported profits for 34 straight years and counts Berkshire Hathaway Inc., the investment firm led by billionaire investor Warren Buffett, among its biggest shareholders.

Acquisition Spree

Following its founding by local businessmen led by du Pont, Wilmington Trust grew and made mergers to become Delaware’s biggest bank by 1912, according to its website. During the 1930s, it lent money to companies including Atlanta-based Coca- Cola Co. and General Motors Acceptance Corp., now known as Detroit-based Ally Financial Inc. It expanded in the state in the 1950s, buying at least eight other firms.

The bank’s wealth-management unit, focusing on customers across the U.S. with $10 million or more of liquid assets, managed $26.5 billion as of Sept. 30. Clients still include du Pont family members, said Bill Benintende, a spokesman for the bank.

Ties to the family are featured throughout the company’s website, including a “heritage brochure.” They no longer play a prominent leadership role, said David S. Swayze, a director at law firm Parkowski Guerke & Swayze PA in Wilmington, who has studied the state’s financial history.

“Wilmington Trust is an icon, the prince of banking in Delaware for the last decades,” Swayze said. “But the presence of the du Pont family in the company’s hierarchy disappeared some time ago.”

‘Protracted Recession’

Pierre S. du Pont IV, a former governor of Delaware who now practices law in Wilmington, said he was “surprised” by the deal. “My grandfather’s generation was much more involved in the bank,” he said in a telephone interview.

Defaults by housing developers hurt results in recent years as demand for second-homes in southern Delaware plunged among people approaching retirement, Foley said. Building permits issued in Delaware’s southern-most county, Sussex, which includes Rehoboth Beach and several resort towns, declined 62 percent to 1,318 last year from a peak in 2004, county records show.

In the second quarter of this year, Wilmington Trust saw “significant declines” in the collateral value of its commercial real estate loans, according to a regulatory filing by the company, based in the city of the same name. Most of those loans, 58 percent, were for projects in southern Delaware.

Stock Drop

“The impact of the protracted recession on Delaware simply can’t be overstated,” Foley said on the conference call. “We have little assurance our capital won’t erode further.”

Wilmington Trust put itself up for sale as it prepared to report a sixth straight quarterly loss. The firm and its bankers at Lazard Ltd. contacted bigger lenders including M&T, Bank of Montreal and Toronto-Dominion Bank about a takeover, and solicited interest from private-equity investors in making a capital infusion, people with knowledge of the matter have said.

The bank’s stock slid 42 percent this year to $7.11 as of Oct. 29. It dropped to $4.21 in New York Stock Exchange composite trading yesterday. Wilmington investors will get 0.051 share of M&T for each of theirs, the firms said in a statement.

While Wilmington’s stock traded above M&T’s offer, Jones sought to counter speculation that the bid may be revised.

“We’ve got a firm, committed deal,” Jones said on the conference call. “Both parties are committed down this road.”

‘Committed’ to Sale

Wilmington reported yesterday that the third-quarter loss widened to $365.3 million from $5.9 million in the year-earlier period and $116.4 in the second quarter. Loans and real estate that aren’t receiving interest increased 77 percent in the quarter to $988.6 million from the second quarter, it said.

The purchase price values Wilmington Trust at tangible book value, and the acquisition will add to earnings by 2012, M&T said in a statement. The U.S. Treasury, through its Troubled Asset Relief Program, bought $330 million in preferred equity in Wilmington Trust in December 2008. M&T said it agreed to assume responsibility for the preferred stock.

About 40 M&T employees studied 450 Wilmington Trust loans over 11 days, Jones said. The bank expects $1 billion in remaining pretax losses from Wilmington’s loan portfolio, or about 14 percent of its total loans, he said.

M&T “had time to do every bit of due diligence we wanted to do” and is comfortable it understands the risks in Delaware, where it has a branch, M&T CEO Robert G. Wilmers, 76, said in an interview. The $1 billion estimate is “conservative,” meaning the loss isn’t likely to be more, he said.

“All these reports about M&T’s strong management -- that’s what makes me nervous because I think my colleagues will believe it,” Wilmers said. “The bank graveyard is full of banks that make mistakes in acquisitions, and I don’t plan to be one of them.”

In addition to Lazard Ltd., Wilmington Trust used Morgan Stanley for a fairness opinion, and got legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP. M&T used Royal Bank of Canada’s investment banking unit, and Wachtell, Lipton, Rosen & Katz.

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net;

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.

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