People’s United Financial Inc. (PBCT) said on Monday that it is eyeing the acquisition of Financial Federal Corporation (FIF) for about $738 million in stock and cash.

People’s United, the holding company for People’s United Bank, expects the acquisition to be completed in the first quarter of 2010. This acquisition is expected to be significantly accretive to People’s United’s operating earnings in 2010 without diluting its capital ratios and have an IRR greater than 20%.

Under the terms of the acquisition, Financial Federal shareholders will receive $11.27 in cash and one share of People’s United common stock. Calculated with the closing price of People’s United shares on Nov 20, the transaction is valued at $27.74 per Financial Federal share. The receipt of People’s United stock by shareholders of Financial Federal is expected to be tax-free.

According to the People’s United management, this acquisition offers opportunities for the company to grow its highly-profitable equipment financing business with experienced staff in new markets throughout the country. The combined portfolio will rank People’s United 13th among U.S. bank-owned equipment finance businesses.

Morgan Stanley (MS) acted as exclusive financial advisor to People’s United and Keefe Bruyette & Woods acted as exclusive financial advisor to Financial Federal Corporation.

Financial Federal’s fourth quarter fiscal 2009 (ended Jul 31) earnings of 35 cents per share came in two cents short of the Zacks Consensus Estimate. The earnings for the quarter were also down 29% from 49 cents in the prior-year quarter. Results were negatively impacted primarily by fewer originations, higher provision for credit losses and increased expenses. However, a significant improvement in net interest margin, decreased cost of debt, and strong liquidity were impressive during the quarter

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