L.A. Bank to Gain Entry to Arizona : Security Pacific Will Pay $480 Million for Holding Company
Security Pacific, in a major geographic expansion of its retail banking network, announced Tuesday that it had reached agreement to buy Arizona Bank, that state’s third-largest bank.
The $480-million deal will join Security Pacific, the nation’s seventh-largest bank holding company, with Arizona Bancwest, the Arizona bank’s parent company, which ranks 85th in the United States. Security Pacific will pay $45 per share in cash for 10.3 million shares of Arizona Bancwest’s common stock.
The deal, which requires the approval of state and federal regulators as well as the two companies’ boards and shareholders, is expected to close Oct. 1, 1986, when a new Arizona law allowing such interstate acquisitions takes effect.
The move surprised some analysts because it did not appear to fit with Security Pacific’s strategy of emphasizing expanded commercial and merchant banking services to major corporate customers. But they said the Los Angeles-based bank’s foray into Arizona was a savvy and timely move into one of the nation’s premier banking markets.
Liberal Banking Law
Arizona lawmakers in April passed one of the most liberal interstate banking laws in the nation, paving the way for cross-border acquisitions such as the one announced Tuesday.
“We have been very aware of the growth that’s taken place in Arizona and the amount of business between the two states,” Security Pacific Chairman Richard J. Flamson III said. “This doesn’t mark a departure from our strengths in non-banking businesses but an addition to the overall retail business that has been so good to us over the years.”
He said Arizona Bank will retain its name and current officers and board of directors.
Flamson said he believed that the combination will cause some dilution in Security Pacific’s earnings for the first year or two but that, in the long term, it would make a sizable contribution to the bottom line. He said the purchase price of $45 a share, which is a relatively high 2.7 times the book value of Arizona Bank’s common shares, is reasonable in light of the Arizona bank’s earnings potential.
Don B. Tostenrud, chairman of Arizona Bancwest, said negotiations with Security Pacific had taken four or five weeks. He said his firm had retained Salomon Bros. as an adviser shortly after the Arizona interstate banking law was passed to seek out a potential merger partner.
“We were trying to find the best match we could,” Tostenrud said in an interview. “Staying independent was evaluated and was not really an alternative. We were at a difficult size. Had we been smaller, we would have been happy to stay as we were. If we had been larger, we might have been able to make an acquisition of our own.”
Analysts, who have for some time spoken highly of Security Pacific’s management and earnings record, reacted positively to the announcement, although some questioned the premium Security Pacific paid.
‘A Little Rich’
“The price seems a little rich,” said Paul H. Baastad of the brokerage house S. G. Warburg, Rowe & Pitman, Ackroyd. “Security Pacific is clearly positioning itself to capitalize on Arizona’s future growth.”
Don Crowley of the brokerage firm of Keefe, Bruyette & Woods said that, despite the apparently high price, Security Pacific got a solid institution and a firm foothold in a profitable market.
Investors rated the deal in similar fashion. Security Pacific’s stock closed up 50 cents a share at $27, while Arizona Bancwest stock closed up $2.625 at $34.375.
