C&S; Bank Expresses Doubts About NCNB Bid

Citizens & Southern Corp. said Friday that it had “serious questions” about the terms of a surprise merger offer from North Carolina’s NCNB Corp., and some analysts said the proposed merger of two of the Southeast’s largest banking companies would face numerous obstacles.

Officials at NCNB, however, insisted their offer of a stock swap was friendly and would benefit both companies. The C&S; board scheduled a special meeting for Monday in Atlanta to discuss the $2.4-billion proposal.

Charlotte-based NCNB announced its unsolicited bid Thursday night, culminating a long-acknowledged desire to break into the Georgia banking market.

The bid came four months after NCNB took control of Texas’ largest bank. NCNB paid more than $200 million for a 20% stake in First RepublicBank Corp. last year after the Federal Deposit Insurance Corp. chose NCNB to manage and operate the financially ailing facility.

The proposal to acquire C&S; would result in the creation of the nation’s sixth-largest banking company with more than $75 billion in assets.

In a three-page letter dated Thursday, NCNB proposed a tax-free exchange giving C&S; stockholders 1.075 shares of NCNB common stock for each share of C&S; common stock. NCNB stock closed Thursday at $36.25 and C&S; at $26.75.

“Our remarkable franchise would leave our other competitors behind,” NCNB Chairman Hugh L. McColl Jr. wrote.

C&S; issued a statement saying the offer would have to be studied.

“Any proposal involving NCNB stock raises a number of serious questions of value and regulatory approval that have to be carefully evaluated,” the C&S; statement said.

“Our senior managers are meeting and talking (about the proposal) but until the board meets on Monday there will be nothing substantive,” said C&S; spokeswoman Karen Hill.

Thomas K. Brown, a banking industry analyst with Smith Barney in New York, said the stock exchange approach may not win favor with C&S; stockholders.

“I would give the odds 60% against and 40% for, at this price,” Brown said. “I think C&S; would conclude that it’s too low.”

NCNB’s stock has risen sharply over the last three months since the First RepublicBank deal, and Brown said it could begin to decline.

“The critical concern there among investors is that (NCNB) bit off too much” in Texas, he said. “Now, can they do two (big deals) at one time? I suspect they cannot.”

Another obstacle to the deal, Brown said, is the contrast in styles between NCNB’s and C&S;’ management.

“You have two distinctly different cultures,” he said. “NCNB is hard-charging, aggressive. C&S; is what I call a community banking organization, more deliberate.”

The NCNB proposal calls for retaining the directors and management of C&S;, with the Atlanta-based bank operating in Georgia as an autonomous company.

“Certainly, since everything’s been proposed, it’s quite possible it could go through--either as proposed or with some modifications,” said Rick Mueller, an analyst with Duff & Phelps Inc. in Chicago. “I think when you look at it from the shareholders’ standpoint, they’d prefer cash to stock. It really depends on the shareholders’ position.”