Security Pacific Says Acquisition on Track
In an unusual move designed to refute rumors that its acquisition by BankAmerica Corp. is in trouble, Security Pacific Corp. issued a statement Friday saying that the deal is moving ahead, adding that the merger agreement includes no clause allowing BankAmerica to lower the price.
The statement by the Los Angeles-based banking firm comes in response to persistent statements by short sellers--investors who bet stocks will fall in price--that routine language in the merger agreement would allow BankAmerica to bail out of the deal if Security Pacific’s financial condition is much worse than expected. Others have suggested that BankAmerica may seek to renegotiate the price of the deal, which was announced Aug. 12.
But most Wall Street analysts believe that there is only the slimmest of chances that the deal will collapse, and that San Francisco-based BankAmerica can easily can absorb any unexpected problems.
At least $1 billion is expected to be allocated to cover possible losses on Security Pacific loans. Various sources familiar with the banks say they believe that the number will eventually be around $1.2 billion, not nearly enough to threaten the deal.
As part of the deal, BankAmerica plans to revalue Security Pacific’s assets through “purchase accounting” methods, a technique that involves raising the value of some assets while lowering others so they will be at market value when the banks combine. In addition, the combined bank expects to save $1 billion a year in annual expenses as a result of the merger, and many bankers believe that the savings could be even higher.
Prudential Securities analyst George Salam on Friday downgraded Security Pacific’s stock to a “sell” from a “hold,” noting that some investors are worried that the deal will fall through. But Salem, a well-known bear on California bank stocks, added that the odds favor the merger, assigning it a 90% probability.
Two other bank analysts--Thomas K. Brown of Donaldson, Lufkin & Jenrette and Thomas Hanley of Salomon Bros.--issued reports this week emphasizing that they believe the merger will go through. Brown said BankAmerica’s evaluation apparently has shown that Security Pacific’s loan quality is moderately less than expected, adding that “this should have no meaningful impact” on the proposed acquisition.
The stock-swap transaction, valued at more than $4 billion, involves Security Pacific shareholders exchanging their stock for 0.88 shares of BankAmerica stock.
The agreement includes a standard merger clause that says that it can be called off if “material adverse change” occurs. In addition, the agreement also is believed to include a clause that would allow the deal to be called off in the event of a large divestiture, a clause apparently built into the contract in case Justice Department antitrust officials require divestitures so onerous that the deal would no longer be worth doing.
On trading Friday on the New York Stock Exchange, BankAmerica finished up 12.5 cents to $40, while Security Pacific rose 75 cents to $32.
