KeyCorp announced today that they have entered into a definitive agreement under which KeyCorp will acquire First Niagara in a cash and stock transaction for total consideration valued at approximately $4.1 billion.

First Niagara, headquartered in Buffalo, N.Y., has $39 billion in assets and $29 billion in deposits and 394 banking offices in New York, Pennsylvania, Connecticut and Massachusetts.  With approximately $135 billion of assets, the combined bank will be the 13th largest commercial bank headquartered in the U.S.

The combination will create a leading regional bank with enhanced scale to serve three million clients across diverse markets in the Northeast, Mid-Atlantic, Midwest and Pacific Northwest.  The acquisition will make KeyCorp a leading bank in Upstate New York, with a strong market presence in Buffalo, Albany, Syracuse and Rochester.  KeyCorp will also expand its operations to attractive markets throughout Pennsylvania, Massachusetts and Connecticut.

Under the terms of the agreement, which was unanimously approved by the Boards of Directors of each company, the merger consideration will be approximately $4.1 billion.  First Niagara shareholders will receive 0.68 KeyCorp shares and $2.30 in cash for each First Niagara common share.  The per share consideration is valued at $11.40 per share based on the closing price of KeyCorp common stock on October 29, 2015.  In conjunction with the closing of the transaction, three members of the First Niagara Board of Directors are expected to join the KeyCorp Board, which will be expanded accordingly.

"Key and First Niagara are a powerful combination, driven by a shared commitment to the clients and to the communities we serve," said KeyCorp Chairman and CEO Beth Mooney.  "This transformational opportunity will bring compelling and complementary capabilities to our shared 3 million clients, while driving meaningful synergies and enhancing shareholder value.  KeyBank and First Niagara both have values-based cultures and a long-term commitment to and experience with the region"

"I am confident that the combination of First Niagara and Key will benefit our shareholders, customers and the communities we serve and will build off the great progress that the First Niagara team has made," said Nathaniel D. Woodson, Chairman of the Board of Directors of First Niagara. "We believe that this partnership provides significant value for our shareholders and allows them to participate in the upside potential of the combined Key and First Niagara."

"I am incredibly proud of all that my team has accomplished to put our customers at the center of all we do," said Gary M. Crosby, President and CEO of First Niagara. "Combining our strengths with those of Key will enable us to even better serve customers with a broader set of product features and functionality, while providing our team members with expanded opportunities as part of a larger, more-diversified organization. Key shares our values and our culture of diversity, inclusion and community service – I look forward to working with their team to ensure a seamless integration of our businesses for the benefit of all of our stakeholders."

"We have known First Niagara for a long time and have always been impressed by the quality of their people and their commitment to the community. We look forward to welcoming First Niagara clients and employees to Key," said Mooney.

Importantly, the compelling financial rationale for the transaction provides significant upside potential for shareholders of both companies.  The acquisition diversifies KeyCorp's loan portfolio, strengthens its core retail deposit franchise and provides expanded scale.  Upon completion of the transaction, the combined company will have approximately $99.8 billion in deposits, $83.6 billion in loans and 1,366 branches across 15 states.  The combined company will have approximately $135 billion of pro forma assets providing increased operating leverage to deliver improved financial performance.

Shareholders of both companies will benefit from annual cost savings in excess of $400 million from maximizing efficiencies of technology infrastructure, procurement savings across the combined organization, and optimizing overlapping branches. The combined bank will be better positioned to generate attractive financial returns for shareholders through improved efficiency, strong returns on capital and earnings accretion.   Finally KeyCorp will maintain its strong capital position, enabling the company to continue to return capital to shareholders.                                                                              

KeyCorp expects the acquisition to be accretive to earnings per share in 2017, excluding one-time charges, and expects the transaction to deliver an attractive Internal Rate of Return of approximately 15%.

Upon closing the transaction, KeyCorp expects to successfully integrate First Niagara into its business.  KeyCorp and First Niagara have the shared expertise, the culture and the capital to ensure a successful transition.  Christopher M. Gorman, President of Key Corporate Bank, will lead the merger integration team which will be comprised of both KeyCorp and First Niagara team members. 

"Chris is a dynamic, client-centric leader who is credited with successfully leading, integrating, transforming, and growing businesses throughout his 30-year career in financial services," said Mooney. 

The acquisition is subject to customary closing conditions, including regulatory approvals and approval by KeyCorp and First Niagara shareholders.  The transaction is expected to close in the third quarter of 2016.

Advisors Morgan Stanley & Co. LLC served as lead financial advisor and KeyBanc Capital Markets as financial advisor to KeyCorp.  Simpson Thacher & Bartlett LLP served as legal counsel to KeyCorp.

J.P. Morgan Securities LLC served as financial advisor to First Niagara, and Sullivan & Cromwell served as legal counsel to First Niagara.