People's United to Buy Chittenden for $1.9 Billion

People's United Financialsaid on Wednesday that it would buy Chittenden for $1.9 billion in cash and stock, combining one of Connecticut's largest banks with one of Vermont's largest.

The transaction values Chittenden at about $37 per share, a 31 percent premium over its Tuesday closing price of $28.24 on the New York Stock Exchange.

Chittenden shareholders will receive $20.35 plus 0.8775 times the average closing price of People's United in the five days prior to closing.

People's United said it will pay 55 percent of the purchase price, or roughly $1 billion, in cash.

Chittenden, the Burlington, Vermont-based parent of Chittenden Bank, has $6.6 billion of assets, $5.5 billion of deposits and more than 50 branches. Founded in 1904, the company said it is its home state's largest bank.

Bridgeport, Connecticut-based People's United, which operates People's United Bank, is one of that state's largest banks, with $14 billion of assets and 160 branches.

The 165-year-old company received $3.44 billion of proceeds in April when it completed a conversion from mutual ownership to a public company.

People's United expects the transaction to close in the first quarter of 2008 and add immediately to earnings. It expects a 13 percent internal rate of return, higher than its cost of capital.

Morgan Stanley and the law firms Cleary Gottlieb Steen & Hamilton and Thacher Proffitt & Wood advised People's United. Lehman Brothers, JPMorgan and the law firm Goodwin Procter advised Chittenden.

People's United shares closed Tuesday at $18.71 on the Nasdaq.