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$2 billion in shares of M&T to go on market Ireland's government is forcing sale by AIB

Nearly one-fourth of M&T Bank Corp.'s outstanding shares -- worth more than $2 billion -- could hit the market sometime this year, as shareholder Allied Irish Banks PLC is being forced by the government of Ireland to unload its 7-year-old investment to raise capital.

The Dublin-based banking giant, the biggest in Ireland and one of the largest in Europe, said Tuesday that it will seek to sell its 22.5 percent stake in M&T by the end of the year, along with its operations in the United Kingdom and Poland.

Having such a large piece of one of Buffalo's revered corporate citizens -- and major employers -- suddenly on the market could be a cause for concern. However, a bank spokesman said M&T has some control over how the stock can be sold. For example, M&T has the right of first refusal, meaning that it can buy the stock itself if an unwelcome buyer emerges.

The need for the sale results from an agreement with the Irish government, which owns 25 percent of AIB following a bailout last year, to raise $10 billion by the end of the year to meet new capital ratio requirements.

AIB's investment in M&T totals 26.7 million shares, which it acquired in 2003 when it sold Baltimore-based Allfirst Financial to M&T. At M&T's closing price Tuesday of $79.76, it's valued at $2.13 billion.

Such a sale has long been rumored as AIB struggles to pull itself out of trouble. But until now, it has been publicly denied or dismissed by both banks, although the questions still cropped up.

"We were expecting a resolution of that this year," said Albert H. Savastano, bank equity analyst at Macquarie Capital in New York, who follows M&T. "Looks like we're going to get it."

But the potential impact on M&T could be significant for Buffalo. Besides its voting power, AIB -- which has remained supportive of M&T's management and strategy -- currently holds four seats on M&T's board of directors. The two banks have developed a strong relationship and mutual cooperation over the last few years that executives of both sides have praised.

More importantly, AIB's control of such a large block of M&T's stock -- together with an additional 20 percent in the hands of Chief Executive Officer Robert G. Wilmers, investor Warren E. Buffett's Berkshire Hathaway, and the bank's directors, officers and employees -- has helped cement control of M&T in "friendly" insider hands as the bank has grown.

Now, with more than half of that block of stock about to go on the market, M&T executives are counting on their relationship with AIB to help avoid or to mitigate any disruption.

"We are aware of the plan that AIB announced today, and we will continue working together with AIB under the terms of our agreement to achieve an orderly transfer that is in the best interest of all stakeholders," M&T spokesman C. Michael Zabel said.

AIB spokeswoman Catherine Burke noted that the process is just starting and said that the bank "can't make any more comments than we've said" Tuesday, but "obviously we may be saying something later on."

M&T can dodge the biggest risk: the possibility of a single unfriendly buyer taking the entire stake. The original 2003 agreement in which AIB received M&T stock for selling Allfirst included "numerous provisions" that "allow for an orderly transfer" and gave M&T the "right of first refusal" to block certain outcomes, Zabel said.

In particular, no party can acquire more than 2 percent of M&T's shares in any direct "private placement" of the shares, such as through a single buyer, without M&T's consent -- effectively giving the bank a veto.

Otherwise, the stock can only be disposed of in a "widely dispersed" public offering directly by the bank or through a brokerage; a "tender offer" to M&T's shareholders; or a buyback by M&T.

If AIB wants to use any other means, it must give M&T written notice of the specific terms of any proposal, and M&T will then have 20 days to either repurchase the shares itself or find an alternative buyer to do so. Only if it fails to do so can AIB proceed with other options.

"They're fine," Savastano said, dismissing any concern for M&T. "I don't think they're going to have an issue placing it with shareholders if they do a public offering."

The sale of the M&T stake is one of several steps AIB is taking to raise capital on its own to meet as much of the Irish government's capital requirements as it can without tapping Irish taxpayers for more.

"We recognize and are grateful for the significant support that has been provided by the Irish taxpayer over the last 18 months," the bank added.


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