Wilmington Trust (WL) shares plummeted 44% in morning trading Monday as the struggling East coast institution announced M&T Bank (MTB) would acquire the company in a stock transaction valued at $351 million.

Wilmington stock went into free fall, dropping as low as $3.95 a share on Monday from its previous close of $7.11 a share. Investors were clearly not pacified by the merger announcement as Wilmington reported a loss of $365 million in the third quarter.

Under the deal, Wilmington shareholders will receive 0.051372 shares of M&T stock for every share of Wilmington they own. Although the offer is less than Wilmington's market cap, it does provide Wilmington a way to get out from under its troublesome real estate loans.

"There is no significant economic or real estate recovery on the horizon in our markets. Therefore, we have little assurance that our loan portfolio will strengthen significantly in the near term, or that our capital position will not erode further. These risks increase the possibility of downgrades by the credit rating agencies or adverse regulatory actions which could compromise our businesses," Donald Foley, Wilmington CEO, said in a statement about the bank's third quarter performance.

Foley, in a statement addressing the merger, said that assessment prompted the bank to examine strategic alternatives and deal with M&T was struck.

"In M&T, Wilmington Trust has found a partner with complementary businesses, a strong financial foundation and an outstanding reputation. Our merger will allow us to build on our many strengths and preserve our commitment to clients and the Delaware community," Foley stated.

The deal will allow M&T to expand its community banking operations and its presence in upstate New York, central Pennsylvania and the mid-Atlantic region. With the merger, M&T will also gain approximately $8.3 billion in deposits and $8.1 billion in loans.

Shares of M&T rose 3.6% to $77.45 a share in morning trading. The deal is expected to close by summer.

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