KeyCorp isn’t worried that class-action shareholder lawsuits challenging the bank’s acquisition of First Niagara Financial Group will derail its plans, said Beth E. Mooney, KeyCorp’s chairman and chief executive officer.
“The shareholder lawsuits are, unfortunately, part of the business landscape we do business in,” Mooney said Tuesday at the Goldman Sachs U.S. Financial Services Conference, which was broadcast online. “I don’t think we believe they have merit. We have been out obviously meeting employees, engaging with community groups, meeting with our shareholders, and I think we’ve had a very constructive dialogue about why this is a unique opportunity for Key and why we are well positioned to unlock value.”
Cleveland-based KeyCorp in a regulatory filing said five such lawsuits were filed in November by “purported First Niagara shareholders,” seeking to block the $4.1 billion acquisition. The lawsuits contend that First Niagara’s board members didn’t take necessary steps to maximize shareholder value in agreeing to the deal, among other claims.
In the same filing, KeyCorp revealed that four banks participated in bidding for First Niagara. First Niagara’s board also evaluated whether to remain independent, before deciding the bank’s valuation as a standalone entity was likely lower than any of the bidders’ proposals. In the second round of bidding, KeyCorp prevailed over one remaining rival after raising its offer to $11.40 per share.
“We just felt the return levels were sufficient to support the kind of price we had on the table, and we do believe it’s a fair price for what we can deliver and will value for our shareholders,” said Don Kimble, KeyCorp’s chief financial officer. The bank hopes to complete the deal in the third quarter of 2016, if shareholders and regulators approve it.
KeyCorp is aiming for $400 million in annual cost savings resulting from the acquisition, raising fears about the impact on jobs at First Niagara’s headquarters and local branches.
Mooney didn’t specify what the impact would be on Western New York. But she said KeyCorp has a lot to consider.
First Niagara was “in an outsourced environment because they had grown rapidly through acquisitions, and so they had outsourced their technology operations and were hosted outside of the bank,” she said. Key intends to cancel those vendor contracts; Mooney said that cost will be included in a onetime charge KeyCorp will take. “Forty percent of the $400 million (in savings) comes from that alone,” she said.
Referring to other expenses, Mooney said: “There will be a level of branch overlap, there’s obviously two headquarters, (two) sets of staff.”
Mooney said she has visited all of First Niagara’s markets in the weeks since the merger was announced, and sees ways for KeyCorp to build on plans First Niagara had in motion. First Niagara was “on a path to become a more-developed commercial bank … with immature product sets,” she said.
“As we talk with their teams, they see a lot of excitement about how we can deliver with Key’s product sets, much of which comes out of our corporate bank,” Mooney said.
Mooney was asked about the market’s reaction to KeyCorp’s deal for First Niagara.
“I do think – and I think it was borne out in fact – that the market was not conditioned to the thought of Key being an acquirer,” she said. “We have not been an acquisitive bank. We have been consistently saying we would be opportunistic with our capital. But we have not been a bank that has talked about trying to be in the deal flow, looking to get larger, to extend our franchise.”