Even though the right amount of money has a way of smoothing over many differences, it looks like the all-too-logical acquisition of M&T Bank (NYSE:MTB) and Spain's Santander (NYSE:STD) is once again leaning more towards "unlikely" than "likely". With reports out there suggesting that talks once again broke down over an issue of control, it may be time for both parties to move on and pursue strategies that do not involve each other.
The Story So Far
While rumors about negotiations between the two companies have been rampant for months, and Santander executives have been quoted talking about a possible deal, M&T has so far not commented and the two parties have clearly not managed to strike a deal. While M&T is a fine target in its own right, it is probable that Santander's interest originated in the struggles of Allied Irish Banks (NYSE:AIB). Allied Irish owns a large chunk of M&T (about 22%), but desperately needs to clean up its balance sheet and raise capital. Consequently, that stake in M&T is pretty much up for bid.
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Throughout the crisis (and despite problems with its own operations in Spain), Santander has had a keen eye towards picking up assets from troubled banks within Great Britain. Santander bought branches from Royal Bank of Scotland (NYSE:RBS), car loans from HSBC (NYSE:HBC) and recently agreed to buy AIB's majority stake in a Polish Bank. It is not hard to imagine, then, that Santander would be an interested bidder for that M&T stake - especially as the company arguably has a need to expand the footprint of Sovereign Bank and its U.S. footprint.
Both M&T and Santander have played these negotiations relatively cool; there has been no public screeching about opportunism or unfair valuations. That said, M&T management knows that it runs one of the best banks around and they are not going to sell on anything but their own terms. With this latest round of stories about talks falling apart, it seems that control (and not price) is the sticking point - whether or not M&T management will control the combined entity (M&T plus Sovereign) or whether Santander will stick with its current management. (For related reading, see Allied Irish Banks Tries To Avoid Trouble.)
Although it might be understandable that a huge bank like Santander does not want to be dictated to by a much-smaller company, Santander would be wise not to let this be the issue that destroys the deal. M&T has posted stellar results over the long term and stands with US Bancorp (NYSE:USB) and few others at the top of the mountain in terms of reputation among larger U.S. banks. Handing over a larger Sovereign Bank to M&T management would hardly seem like a bad idea. (For more, see Santander's Footprint Pays Off.)
Where To From Here?
Santander has the money to do a deal at a meaningful premium, but if money is not all that matters to M&T management, it may be a moot point. To that end, it may be time for Santander to explore other targets - PNC (NYSE:PNC) and SunTrust (NYSE:STI) could fit Santander's needs, and there is really no shortage of attractive U.S. and Canadian targets.
For M&T, the company may think outside the box to bring this hassle to a close. Although the company could not buy that stake back from Allied Irish without a capital raise, it could be possible for the company to talk to other investors - Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) owns a stake in M&T - about a joint bid. At a minimum, it is fair to think that this would bring the strange process to a quick close, even if it was not necessarily the best move for shareholders.
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