Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, June 20, 1995 TAG: 9506210044
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
It would create a powerful East Coast commercial bank and has the potential for creating jobs in Roanoke.
The consolidation would make Charlotte, N.C.-based First Union the nation's sixth-largest bank holding company based on total assets of $123.7 billion. It would serve 10.5 million customers through 2,000 branches in 13 states stretching from Florida to Connecticut.
David Scanzoni, spokesman for First Union, said no decision has been made about where various facilities will be located after the merger, which is to be completed before year's end.
But he said the consolidation has "no negatives at all" for Roanoke and, at the very least, makes it the regional headquarters of a strong and growing company. It will also allow First Union to sell its financial services and products to 3.5 million new customers, which would directly benefit the bank's Roanoke operations.
Several First Union systemwide functions are based in the Roanoke Valley, including the credit card products service center, mortgage processing, consumer loan service center and the bank's print shop.
Robert W. Helms, vice chairman of First Union National Bank of Virginia in Roanoke, said it is "inconceivable to me" that the company would move those functions out of the valley to another location in the merged system.
That's because, Helms said, First Union has found that Roanoke is an excellent place to do business because it has a stable and educated work force. But he stressed that these questions had not been resolved.
Reid Nagle of SNL Securities in Charlottesville called the proposed merger "a blockbuster of a deal." SNL is a specialist in bank mergers.
He said it rivals the 1991 deal between BankAmerica Corp. of San Francisco with Security Pacific Bancorp of Los Angeles. That deal was valued at $4.7 billion
The merger of First Union and First Fidelity of Newark, N.J., and Philadelphia, Nagle said, will "create the dominant banking franchise on the East Coast," eclipsing the NationsBank Corp. branch system. In every market, he added, First Union will rank first, second or third in market share.
Only time will tell the outcome, Nagle said, but the deal appears favorable to First Union shareholders, even though the stock fell 21/2 points immediately after the news. First Union stock closed Monday at $45.75 a share, down $1.871/2, while First Fidelity was up $10.25 to $59. Both are traded on the New York Stock Exchange.
It's not unusual for the acquiring company in a merger to suffer a loss in value, said Guy W. Ford, research director for Scott & Stringfellow Inc. in Richmond. But he said the merger will add to the company's earnings and is part of "the ongoing trend of consolidation in the banking business."
First Union has been successful in its acquisitions over time, he said. The First Fidelity deal, Ford said, expands First Union's franchise and gives it an opportunity to lower costs by spreading expenses over a larger base.
David West, who follows the banking industry for Davenport & Co. in Richmond, said the merger should turn out well in the long term, but warned that it likely will dilute stock values and earnings in 1995.
In a Monday morning news conference in New York, First Fidelity Chairman Tony Terracciano said his bank had spent three months studying the options of continued modest acquisitions, a major acquisition or being acquired by another institution. The analysis, he said, showed that the stockholders would be better off by merging First Fidelity into another institution and specifically into First Union.
The banks, he said, had been negotiating intensively for two weeks before reaching agreement. The deal could close as early as October and could result in the loss of some jobs in the First Fidelity region.
First Fidelity, Terracciano said, offered the advantages of doing business in densely populated markets of the Northeast, but needed "a massive injection" of First Union's banking products. He was not specific, but First Union has created a Capital Markets Group for commercial financing. It also purchased a mutual fund company and sells annuities.
First Union Chairman Edward E. Crutchfield said the Northeast and Mid-Atlantic regions have seen the same level of bank mergers as the Southeast. He said that leaves opportunities for further "transactions" in the expanded market.
First Union will exchange 1.35 shares of its common stock for each share of First Fidelity. Based on First Union's recent stock price, the transaction would be valued at about $5.4 billion and would represent an exchange value of $64.29 for each First Fidelity share. The purchase price would be 1.92 times First Fidelity's March 31 book value.
Before completing the merger, the companies plan to repurchase up to 5.5 million First Fidelity shares or 7.4 million First Union shares, or some combination of the two. About 105 million First Union shares are expected to be issued in the transaction.
First Union estimates the combined company will earn $5.29 a share for 1995, excluding a restructuring charge of $140 million, equal to 50 cents a share, to cover merger expenses. The company projected 1996 earnings at $6.31 a share.
The First Union board approved the 18th consecutive dividend payable Sept. 15 to stockholders of record Aug. 31. The quarterly dividend will increase 13 percent from 46 to 52 cents, or 2.08 on an annualized basis.
The merger is subject to approval by regulators, who generally encourage consolidations, and by stockholders of both companies.
Banco Santander, the leading bank in Spain, owns 30 percent of First Fidelity stock and already has pledged to support the merger. It will own about 11.4 percent of the new First Union if the deal is completed.
But, West said, the merger creates a "very powerful banking franchise," providing First Union with a larger base of consumer and medium-sized business customers. Over the long term, he said, the merger "is a very significant event for First Union."
by CNB