Era of the Mega-Merger Not Over, Analysts Say : Banking: Though the Bank of Boston-CoreStates talks broke down, economic conditions are expected to drive companies to combine.
Merger talks between Bank of Boston Corp. and Philadelphia-based CoreStates Financial Corp. may have collapsed, but bank analysts say the era of the mega-merger is far from over.
A combination of slow economic growth, intense competition for depositors and new federal laws easing restrictions on operating branches across state lines will drive more banks to combine forces, analysts say.
“It’s going to continue happening. No one has ever proved to my satisfaction that bigger banks are better banks, but that’s the fashion,” said Chris Kotowski, an analyst with Oppenheimer & Co. of New York.
According to published reports, CoreStates had offered Bank of Boston $4.2 billion, or $38 a share, below the bank’s closing price Thursday of $41.875. Under the agreement, the merged company’s headquarters would have remained in Boston, preserving jobs for both top managers and rank and file workers.
However, as details of the agreement became known Friday, angry investors protested the deal, saying the offer was too low.
In a surprise announcement Saturday night, both banks said negotiations had been terminated.
“We did enter into preliminary discussions but were unable to agree upon a plan that provides sufficient benefits to our shareholders, customers, employees and communities,” the banks said in a joint statement. “Discussions have therefore been terminated.”
A CoreStates spokeswoman contacted Sunday had no comment beyond the statement. Ira A. Jackson, head of external affairs at Bank of Boston, declined to comment Sunday about why the deal fell through.
Bank of Boston’s shares closed Friday at $40.125, down $1.75 on the New York Stock Exchange. CoreStates’ shares fell $1.125 to close at $33.875.
Had it gone through, the merger would have been the latest in a string of huge bank deals. Last month, Charlotte, N.C.-based First Union Corp. said it would acquire New Jersey’s First Fidelity Bancorp for $5.4 billion, the biggest bank merger ever. Earlier this month, First Chicago Corp. and Detroit-based NBD Bancorp Inc. announced a $5-billion merger.
Analysts say the trend toward bank mergers would continue to affect Bank of Boston. Boston is an attractive banking market, and the number of available merger partners is dwindling, they said.
Frank Barkocy, an analyst with Advest Inc. of Boston, said the publicity spotlight on the Bank of Boston-CoreStates talks has made the Boston bank--which has failed in previous attempts at a merger--even more vulnerable to a takeover.
“It’s only one of two major remaining players, the other being BayBanks Inc., available in the New England marketplace. I would think that any large institution looking to position in New England would have to view Bank of Boston as a viable target,” he said.
According to published reports, Pittsburgh-based Mellon Bank Corp. had offered to buy Bank of Boston for $39 to $40 a share. The company’s board rejected the bid at a meeting Thursday, the reports said.
Analysts said Ira Stepanian, Bank of Boston’s chairman and chief executive, miscalculated when he attempted to make a deal with CoreStates that would preserve the company’s management structure.
