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WSFS, Beneficial deal faces bank shareholders in a weakened market

"This is the market telling you they don't believe."

1818 Market Street .<br/>
the Beneficial Bank building, in 2016. It will be a regional office for Beneficial's buyer, WSFS Financial Corp., if shareholders vote to combine next month. MICHAEL BRYANT / Staff Photographer
1818 Market Street .<br/> the Beneficial Bank building, in 2016. It will be a regional office for Beneficial's buyer, WSFS Financial Corp., if shareholders vote to combine next month. MICHAEL BRYANT / Staff PhotographerRead moreMichael Bryant

Shares of Philadelphia's largest remaining bank, Beneficial Bancorp Inc., and its planned acquirer, WSFS Financial Corp. of Wilmington, have slipped with the stock market since they announced the planned takeover in August.

Unless a sudden turnaround lifts the stocks, Beneficial shareholders will see less than the $19.61 a share that the deal makers projected last summer. WSFS has traded in the low $40s in recent days, down from the high $50s before the deal. That means Beneficial shareholders will receive a bit more than $15 and change for their shares, including $2.93 in cash and WSFS stock.

Some Beneficial old-timers resent the sale, complaining that chief executive Gerry Cuddy and his board voted to pay themselves $17 million in stock bonuses before the deal (later reduced by a shareholder lawsuit to $13 million) after missing an opportunity to enrich other shareholders and consolidate Beneficial's position as the biggest bank still based in Philadelphia in the years since the formerly shareholder-owned "mutual" bank raised what they hoped would be expansion capital in its 2007 share sale.

Beneficial's weaker record contrasts with that of WSFS, which "demutualized" earlier, expanded from its Delaware base into the Philadelphia area, and has generated sales and profit growth to boost its share price so it can be an acquirer instead of a target.

But insiders will be protected if Beneficial shareholders ratify the sale at what will probably be their final annual meeting Dec. 6 (WSFS votes Dec. 12).

Cuddy will get his approximately $9.2 million sale payout — $5.1 million in cash, $4.8 million in restricted shares and stock options — with outstanding options converting into cash at $19.50 per share, even if their market value is less, according to the sale prospectus posted for shareholders in advance of the vote.

Chief financial officer Thomas D. Cestare will collect a total of $5.3 million, chief administrative officer Joanne R. Ryder gets $3.5 million,  chief  lending officer Martin F. Gallagher Jr. $3.3 million, and chief retail officer Pamela M. Cyr $2.6 million.

Though other bank stocks are also down, the pre-deal drop has fed some grousing. "This is the market telling you they don't believe WSFS will keep all the Beneficial customers," said Robert Costello, head of $130 million-asset Costello Asset Management in Feasterville.

He said Beneficial customers who are called on to switch to WSFS, as the buyer substitutes its green signs for Beneficial's blue ones, might instead join the Philadelphia Police & Fire Federal Credit Union or other credit unions that have been paying higher checking account yields than banks. He noted that share prices and expectations are also down for Bryn Mawr Trust and other area lenders (with a few exceptions, such as Republic Bank, which is adding branches and customers). "Mostly there are too many banks around here," Costello added.

That, of course, is the point of the WSFS-Beneficial merger. Each bank has around 60 branches; they plan to close 30 after the merger, leaving around 90, while consolidating headquarters and back-office systems. WSFS chief executive-designate Rodger Levenson says he will plow savings into customer technology upgrades, to add services and products credit unions might not match and to better compete against national players such as JPMorgan Chase & Co., which has opened the first of 50 branches promised for in the region over the next five years.

Even if there are a few sentimental or protest votes against the merger, nobody's predicting the deal will derail. "WSFS's stock price took a big hit in the first days after the announcement. However, both stocks have largely moved in step with the market since that time," comparing favorably in recent months with  the S&P 500 big-stock index and the SNL Bank and Thrift Index, said Joe Gladue, research director at Merion Capital Group.

"I don't see anyone stepping forward and telling them, 'No, we aren't getting paid enough,'" Gladue added. The $2.93 a share cash sweetener, which isn't affected by weakened market values, should help sell the deal, the research director concluded.