Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, July 9, 1995 TAG: 9507100007
SECTION: BUSINESS PAGE: B-2 EDITION: METRO
SOURCE: PAMELA L. MOORE KNIGHT-RIDDER NEWSPAPERS
DATELINE: CHARLOTTE, N.C. LENGTH: Long
In the air, each received an envelope, and the brief note inside explained what First Union Chairman Ed Crutchfield was sending them to do.
Their destination: The Airport Marriott Hotel in Newark, N.J. Their mission: Pull off the biggest bank merger in U.S. history, a $5.4 billion buyout of First Fidelity Bancorp. The code-name: Project Grand Slam.
In Newark June 16, the bankers met 60 First Fidelity executives. For 48 hours straight, they turned the hotel into a sweatshop, searching financial documents for hidden flaws that might make either bank pull back from the deal. Beds became conference tables. Coffee cups and sandwiches covered file boxes. No one slept more than a few hours.
Back in Charlotte, Crutchfield holed up in his bedroom all weekend, pacing the floor, smoking Carltons, eating nothing but a bowl of cereal, getting constant updates by phone. His sheepdog, a 10-month-old sheltie named Bud, kept him company.
Crutchfield was terrified that some snag would stop him from completing the deal, which would create a $124 billion bank, the nation's sixth-largest.
``It's like a father waiting in the waiting room to hear about the birth,'' he said.
Crutchfield had wanted to buy First Fidelity for a long time.
Two years ago he discussed it with his mentor, former First Union Chairman Cliff Cameron. The deal would fulfill the vision Crutchfield had just laid out to his board of directors. To survive the next round of bank consolidation, he told them, First Union must double in size, topping $100 billion in assets.
During the previous three years, Crutchfield had become friends with First Fidelity's chairman and chief executive, Tony Terracciano, while they served on a Federal Reserve Bank advisory board.
They had a few things in common - restlessness, aversion to meetings, a fondness for cigarettes. But they came from different worlds. Terracciano, the son of a bus driver, is an intense, blunt Italian from working-class Bayonne, N.J. Crutchfield, the son of a judge, is a low-key, country gentleman from small-town Albemarle, N.C. Crutchfield, now 53, was three years younger.
Crutchfield liked Terracciano's resume. He had been chief financial officer at Chase Manhattan in New York and president of Mellon Bank in Pittsburgh before taking the top job at First Fidelity.
The bank hired Terracciano in February 1990 as a turnaround artist. It was suffering from a disastrous 1988 merger and buried in bad loans and morale problems. He slashed 1,800 of the bank's 13,900 jobs, turned losses into record profits and built his reputation.
He planned to buy banks from Baltimore to Boston. He got as far north as Connecticut. Today, First Fidelity has 685 branches there and in Maryland, Delaware, Pennsylvania, New York and New Jersey. Assets total $35.4 billion, a little less than half First Union's size.
The two chief executives first discussed a deal a year ago, over breakfast in New York.
The bank they talked about putting together would span 13 states, from Connecticut to the Florida Keys. First Union would vault from ninth place to No. 6 among the big U.S. banks, approaching its Charlotte rival NationsBank, at fourth with $184 billion in assets.
Crutchfield was eager to make an offer. ``I'm out there with my nose pressed against the window at the candy store saying, `Oh come on, come on, come on!''' he recalled.
But Terracciano wasn't ready to sell.
That would change soon. At the end of 1994, First Fidelity was looking at a challenging year ahead. As a Northeast bank, it couldn't count on a buoyant economy to boost its loan and revenue growth, as Southeast banks could.
Most of its cost-cutting was done, and analysts said the bank couldn't keep increasing earnings 10 percent a year. A plain-vanilla bank, First Fidelity lacked the financial resources to offer brokerage services and its own mutual funds, as aggressive banks like First Union and NationsBank had done.
By January, several expansion-minded banks were sniffing around First Fidelity. NationsBank was one.
Crutchfield crossed his fingers and waited. He talked to Terracciano often by phone, but his friend wasn't letting on.
``Terracciano is a fabulous poker player,'' Crutchfield said. ``He gave me almost no clues.''
In early June, Terracciano made a big decision with his chief financial officer and a committee of First Fidelity directors. The bank could no longer stay independent.
They settled on two options: Do a merger of equals - reportedly with Bank of Boston - or go with First Union.
Around June 8, Terracciano asked Crutchfield what price he might be willing to pay. At this point, only a half-dozen of First Union's top executives knew what was going on.
Crutchfield offered a stock exchange. First Fidelity shareholders would get 1.35 shares of First Union stock for each share they owned, making the offer worth $5.5 billion at the time. Terracciano would become president of First Union, replacing John Georgius, who would become vice chairman.
Terracciano spent the weekend of June 10 thinking about what he would recommend to his board when it next met June 15.
``I was going to get a fair price in any of the options that were still on the list,'' Terracciano recalled. ``And when I looked at First Union's ability to be an exception to the history of this industry, that's what convinced me.
``This is an episodic industry. If you talk to institutional investors, they'll tell you, `You know, investing in banks is OK, but what bothers me about it is every three or four years that industry manages to step on a rake. You have a couple of good years and then all of a sudden - boom - a problem hits.'
``When I looked at First Union, they navigated through '89, '90, '91 beautifully, and they managed to blend growth with capacity to manage risk. And that was what was really the determining variable here - management.''
On June 15, Terracciano strongly urged his board to pursue the First Union deal. The board said yes.
He called Crutchfield with the news around noon.
Crutchfield recalled feeling ``pure, unadulterated joy. That, plus you're scared. I mean, five and a half billion dollars is real money in North Carolina.''
The First Union board met that afternoon and gave the go-ahead.
Both CEOs scheduled Sunday night board meetings for a final vote on the deal.
But first, they had to rush their armies of experts to the Newark Marriott. In two days of ``due-diligence'' work, the companies for the first time would open their books to each other for intense examination. Big, bad surprises might scuttle the deal.
Ten top First Union executives - the ones who knew the secret - flew up June 15. Seventy more left the afternoon of June 16 and learned the secret in midair. This was a familiar drill - in 10 years they had done it more than 60 times - but that didn't make it any less exhilarating. This was the biggest ever.
The lid was on tight: First Fidelity's stock closed down 12.5 cents June 16, unusual for a company that's about to be bought. (After the deal was announced June 19, the stock shot up $10.25 to close at $59.
First Fidelity didn't tell its 60 people until the market closed at 4:01 p.m. They suspected something was up, but for all they knew, First Fidelity might be buying another bank. After all, it had bought 22 since 1990.
The First Union executives had 80 rooms reserved under the First Fidelity name. The bankers didn't want to attract attention.
Lucky for them, the hotel was busy that weekend. Five hundred Alpha Kappa Alpha sisters had gathered for a boisterous reunion. There were also two wedding receptions and a Peruvian arts and crafts fair.
The examination started around 5 p.m. Friday and went through the night. It was intense, detail work. Not a lot of noise. And to everyone's delight, not a lot of surprises.
Terracciano dropped by June 17. His nerves were showing, and he concluded he was better off keeping his distance. ``One of my people took me aside and said, `Why don't you get the hell out of here.'''
He had a cup of coffee with John Georgius and left.
``I walked out and said, 'This deal's gonna happen,''' Terracciano remembered.
At 11:30 a.m. June 17, Crutchfield needed a break. In grubby shorts and a T-shirt, he set off to walk his dog.
Bud took off and ran into the street. A car hit him. Crutchfield ran over and found him motionless, his tongue hanging out and blood in his mouth.
Crutchfield panicked.
``I thought, well great, not only might I not get this deal, now I've killed my dog.''
He got lucky. A cab was coming, and Crutchfield flagged it down, scooped up Bud and hopped in. The driver radioed his dispatcher to find a veterinarian. The cab headed for an animal hospital a mile away.
In the lot, the driver leaped out and ran into the vet's office yelling for help. Crutchfield carried Bud straight to the operating table. Another few minutes, said the vet, Dr. Brian Killough, and the dog wouldn't have made it.
Assured that Bud would be OK - just a broken hip - Crutchfield headed back home for more calls and a restless night. Things were going fine in Newark.
He spent June 18 on the phone in his bedroom, so nervous he couldn't eat. About 5 p.m., he got the word: It's a go. No problems.
Crutchfield went downstairs, boiled and ate three hot dogs, grabbed his suitcase, jumped in his Mercedes and headed uptown for One First Union Center.
The board meeting, conducted by telephone with First Union's 25 directors, started around 8:45. In Newark, Terracciano's board meeting already was under way.
Crutchfield brought his directors up to date. Around 10:15, Bob Atwood, First Union's chief financial officer, left the room to take a call. He came back with the news: First Fidelity's board had approved the deal. It was unanimous.
First Union's board voted. Unanimous.
Crutchfield called HawkAire, the bank's corporate jet service. We leave for New York in 20 minutes, he said.
Crutchfield phoned Terracciano from the plane. He doesn't remember exactly what he said. It was short. Congratulations, sleep tight.
The next morning, they met at Manhattan's Hotel Inter-Continental.
``I shook his hand and said, `Pal, I know it's been a real tough trip across the burning sand ... and I won't let you down for my part,''' Crutchfield remembered.
At a conference with bank analysts that morning, the magnitude of what they had done started to hit home.
``I sort of went to a new level of conviction,'' Terracciano remembered. ''I know that sounds sort of mystical, and I'm not trying to say I had an epiphany or something. ... I just had so much confidence in us.''
Crutchfield said, ``This is a grandiose example, but to me it was a little like Eisenhower must have felt after planning for two years, and they radioed back and said the troops are on the beach and moving in.''
The deal still needs approval from federal regulators and shareholders. It likely will close Dec. 31. First Fidelity's largest shareholder, Spanish banking giant Banco Santander, already has said it will vote yes. Santander will become First Union's largest stockholder, with 11 percent of its shares.
There's been no big celebration yet. Crutchfield and Terracciano are saving the toasts for a dinner in Newark next month.
As for Bud, he had hip surgery June 22 and is making a quick recovery. Crutchfield took him home June 24.
by CNB