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CoreStates and Bank of Boston Close to a Merger : Finance: Two Eastern institutions are likely to announce a deal early next week. Analysts are mixed on the merits.

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From Reuters

Bank of Boston Corp. is in merger talks with CoreStates Financial Corp., and the two are likely to announce a deal early next week, a source familiar with the talks said Friday.

The terms of the deal could not be learned, but the source said CoreStates is likely to value Bank of Boston stock at $40 a share, making it worth more than $4.5 billion.

Bank of Boston spokesman Ira Jackson and a spokesman for CoreStates said they would not comment on a possible merger.

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The stocks of both banks have been bid higher this year on expectations that they would be takeover candidates.

But Wall Street analysts said the stocks are likely to fall, at least initially, on news of a merger of equals, because there would be no premium.

Bank of Boston’s stock fell $1.75 to $40.125 on Friday on the New York Stock Exchange, while CoreStates slipped $1.125 to $33.875, also on the NYSE.

“I do not think they have done extensive due diligence,” the source said of the talks between Bank of Boston and CoreStates.

Mellon Bank Corp. was also in talks on a merger of equals with Bank of Boston, said the source, who requested anonymity. He said other bidders are unlikely to emerge.

“The real question is, are CoreStates’ own investors happy with this deal? The stocks have been commanding an enormous market premium,” the source said. “The stock of CoreStates implied a certain level of return on equity and return on assets growth, none of which Bank of Boston can produce.”

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“It is not a good deal,” said Nancy Bush, a banking analyst at Brown Bros. Harriman & Co.

She called the deal “a disaster” and said there were no synergies of culture or geography between the Boston bank and Philadelphia-based CoreStates. A merger, she said, would be “a blatant move by two managements to keep their jobs.”

Advest Inc. analyst Frank Barkocy disagreed.

“I like both banks individually and I like them collectively,” he said.

“It would probably be a good fit with nice long-term benefits. I would like to see the terms,” he said.

Another analyst, who asked not to be named, said the fact that the two banks have no geographic overlap does not preclude big cost savings in a merger, because most of the savings would come from eliminating duplicated back-office operations.

“It is not clear to me how easily the two organizations will integrate on the human issues in terms of who runs the show. We will wait and see,” PaineWebber analyst Lawrence Cohn said.

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