KeyCorp may be close to completing the biggest deal in its history, but the heavy lifting has yet to begin.

The $101 billion-asset company seems on track close on its $4.1 billion acquisition of First Niagara Financial in Buffalo, N.Y., next week. From that point on, investors will be closely monitoring how Chairman and Chief Executive Beth Mooney and her team execute.

Executives got a taste of that scrutiny on Tuesday as analysts peppered them the questions about hitting cost-cutting and revenue targets. This is especially important given the hefty price tag — Key is paying roughly 168% of First Niagara's tangible book value — and subsequent investor frustration.

"If you're going to pay a premium price, you better make sure you're extracting every penny of value," said Bob Ramsey, an analyst at FBR Capital Markets. "You can't come back two years later and say, 'We only got half of what we thought we would.' "

Key's executives have vowed to slash roughly $400 million in costs, but they have also said that internal expense savings targets are even higher than what they publicly disclosed. Key plans to lower the company's cash efficiency ratio of 69% by about 300 basis points. Roughly 40% of these cuts will involve dealings with third-party vendors, while closing more than 100 branches will produce more savings.

Key is also looking at opportunities in mortgages and indirect auto lending. The company had already been building out its own mortgage business when it agreed to buy the $40 billion-asset First Niagara. Indirect auto lending will be a new business for Key.

"Over the last several months, we have gained even greater confidence in our ability to achieve" the projected cost savings and $300 million in new revenue, Don Kimble, Key's chief financial officer, said during Tuesday's conference call to discuss quarterly results.

"We are also even more excited about the revenue synergies," Kimble said. "As we've met with some of the bankers from First Niagara, and see their excitement about a number of the product capabilities and offerings that we'd be able to provide, [it] gives us additional confidence in our ability to achieve … revenue synergies."

Still, analysts questioned whether Key's recent pledge to keep investing in New York would impair its cost-cutting ability. Key, which had faced strong objections from Sen. Charles Schumer, D-N.Y., over the potential of job losses, eventually committed to return employment to pre-merger levels by 2021.

"Some piece of how we have structured bringing the two companies together is around the notion that we can leverage what is an attractive, well-skilled, low-cost workforce in Buffalo and in western New York," Mooney said during Tuesday's call.

Some investors are still wary of the deal, industry experts said.

Shareholders could be divided into two groups, said Gerard Cassidy, an analyst at RBC Capital. One group includes people who owned shares prior to the transaction who are unhappy with the price and what they view as excessive dilution. The other segment includes new investors who want Key to produce better earnings.

Cassidy said he believes improved profit will be possible once Key successfully cuts costs.

"They could see better earnings than many of their peers due to these cost savings that will be achieved through the deal," Cassidy said. "I think they have done a good job with expenses. [Mooney] has done a good job of [improving] efficiency."

Mike Mayo, an analyst at CLSA, said he has fielded more phone calls from investors who are upset about the acquisition than those who are pleased with it. He argued that clearer guidance on how the deal will help certain financial metrics would help hold management accountable and alleviate investor concerns.

Key has a mixed track record in acquisitions, Mayo said, noting that the company's stock price and efficiency have yet to fully recover from the 1994 merger with Society Corp. that created the modern-day Key. Mooney joined Key in 2006, becoming CEO five years later.
The First Niagara deal is better positioned to succeed than the 1994 merger because there is one clear acquirer, Mayo said. Still, the hefty price tag means that there is a "low margin of error," he said.

"KeyCorp's back is up against a wall to prove that it can achieve the intended synergies," Mayo said. "There's a certain amount of frustration below the surface. They need to show that they can execute."