East Meets Midwest

In a deal that could unleash a new wave of bank mergers while creating the nation’s fourth-largest bank, NationsBank Corp. of North Carolina said Friday that it agreed to merge with Boatmen’s Bancshares Inc. of St. Louis in a stock and cash transaction valued at $8.7 billion.

The deal would be the third-largest bank merger in U.S. history. Its product would be an institution with $230 billion in assets and nearly nationwide reach: 13 million customers in 16 states ranging from Maryland to Florida and from the Atlantic Coast to Texas and the Mexican border. The deal is expected to close in January, subject to shareholder and regulatory approval.

“It’s a major transaction and creates the first national bank for all intents and purposes,” said industry analyst Anthony R. Davis at Dean Witter Reynolds in New York.

Investors, however, displayed considerable skepticism over the deal’s price, sending NationsBank stock plunging $7.25 a share to close at $85.125 in New York Stock Exchange trading. The skid lopped about $2 billion off NationsBank’s market capitalization.

It also slashed the indicated value of the deal by as much as $900 million in a single day. Because Boatmen’s share owners would receive the equivalent of 0.6525 NationsBank share for every Boatmen’s share, the deal price dropped from $60.275 a share, or $9.6 billion, Thursday night, to $55.54 a share, or $8.7 billion, by the close of trading Friday.

Shares of Boatmen’s soared $10.31 to $53.25 in Nasdaq trading Friday.

Those price changes indicate that investors believe NationsBank may be bidding too high for Boatmen’s and risking too much dilution in its per-share earnings as a result.

A number of analysts dropped their ratings on NationsBank shares after the merger announcement. Standard & Poor’s placed its ratings on the debt securities of NationsBank and Boatmen’s on CreditWatch, albeit with positive implications. Although S&P; analysts expressed doubts over the deal price, they also viewed the merger as a good strategic move for both banks.

The deal makes long-term sense for NationsBank by helping it establish a “strategic beachhead” in the Midwest from which it might move either west or north into the industrial heartland, said Bert Ely, a Virginia-based bank consultant. Others noted that Boatmen’s is a market leader in five of the nine states--mostly in the lower Midwest and the Southwest.

NationsBank said it would mitigate the effects of any dilution through added revenue as well as cost savings resulting from the consolidation of overlapping operations.

Those savings, the bank said, would come to $335 million annually, fully realized by 1999. Analyst Davis estimates first-year cost savings of $140 million.

“I cannot overstate how much stronger our company becomes through the addition of Boatmen’s business and its markets,” NationsBank’s Chairman Hugh L. McColl Jr. told a news conference in St. Louis on Friday.

NationsBank, based on Thursday’s closing stock price, valued the deal at $9.6 billion. The final value will be determined at the time of completion. NationsBank said the deal is worth 2.6 times Boatmen’s book value; analysts said it is closer to 2.7. In either case, the deal represents a hefty premium over most bank valuations.

The merged bank would retain the NationsBank name and its headquarters in Charlotte, N.C. It would rank fourth in size after Chase Manhattan Corp., Citicorp and BankAmerica Corp.

Andrew B. Craig III, chairman and chief executive of Boatmen’s, would become chairman of NationsBank. McColl, who is also chief executive of NationsBank, would become chief executive of the merged company.

Under McColl’s outspoken stewardship, NationsBank has built itself from a parochial institution with $12 billion in assets in 1983 into the nation’s fifth-largest commercial bank, a regional powerhouse with $192 billion in assets.

The growth has come through an aggressive program of mergers and acquisitions, including three of the 25 largest bank mergers ever. Most recently, NationsBank bought Atlanta-based Bank South for $1.6 billion in January.

A merger between NationsBank and Bank of America has long been rumored but never came to fruition, although McColl confirmed through a spokesman that he held “one or two very initial conversations” with BankAmerica Chairman Richard M. Rosenberg early last year.

Boatmen’s, founded in the 1840s for steamboat workers on the Mississippi River, has assets of about $41 billion.

Friday’s announcement took shareholders by surprise, especially because McColl had been hinting that the bank would hold off on any major deals for the time being.

George M. Salem, analyst at Gerard Klauer Mattison & Co. in New York, said McColl had shown admirable discipline by staying on the sidelines for the last year while the bank merger game was in full frenzy. Now, he hinted, McColl may have squandered that discipline by jumping into the Boatmen’s deal.

“It’s like being on a good diet and then going to the ice cream parlor and spending the whole night there,” Salem said.

Analysts believe Friday’s announcement may set in motion other deals in an industry that has spent the better part of the year digesting the mergers and takeovers that made 1995 a banner year.

“Deals beget deals,” said Thomas Theurkauf Jr., an industry analyst with Keefe, Bruyette & Woods in New York. “It had been quiet for a while. Now maybe things will heat up a bit.”

Under the terms of the proposed merger, at least 60% of the compensation paid to all holders will be in the form of NationsBank shares; the balance will be paid in either cash or stock.

Times staff writer Thomas S. Mulligan in New York contributed to this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

NationsBank Bids $8.7 Billion for Boatmen’s

NationsBank Corp. hopes to expand its reach into the Midwest by buying Boatmen’s Bancshares Inc. for about $8.7 billion in cash and stock. A look at the banks:

NEW REACH

Combined deposit ranking and market share for the two banks:

Boatmen’s Bancshares Inc.

- New Mexico

Rank: 1

Share: 19%

- Kansas

Rank: 1

Share: 8%

- Oklahoma

Rank: 1

Share: 10%

- Missouri

Rank: 1

Share: 17%

- Arkansas

Rank: 1

Share: 14%

- Iowa

Rank: 5

Share: 3%

- Illinois

Rank: 32

Share: 1%

NationsBank

- Kentucky (No rank or market share as only four branches operate in the state.) - Virginia

Rank: 1

Share: 11%

- Maryland

Rank: 1

Share: 16%

- Washington

Rank: 2

Share: 15%

- North Carolina

Rank: 1

Share: 10%

- South Carolina

Rank: 2

Share: 16%

- Georgia

Rank: 1

Share: 17%

- Florida

Rank: 3

Share: 13%

Both

- Texas

Rank: 1

Share: 12%

- Tennessee

Rank: 5

Share: 8%

THE BANKS AT A GLANCE

NATIONSBANK CORP.

-- Headquarters: Charlotte, N.C.

-- Chairman: Hugh L. McColl Jr.

-- Origin: On Jan. 2, 1992, North Carolina National Bank bought another southern bank, C&S; Sovran Corp., and changed its name to NationsBank, which at the time was the fourth-largest bank in the U.S. The bank has since pursued a strategy of aggressive expansion and diversification, acquiring banks throughout the U.S., particularly in Texas; investing in Mexico, and expanding the range of financial services it provides.

-- Financials: Net income of $2.16 billion in the last four quarters; total assets of about $192 billion as of June 30.

-- Services: Retail banking, asset management, financial products, corporate finance and financial services.

-- Recent acquisitions: The company completed its acquisition of TAC Bancshares Inc. and its Miami-based Chase Federal Bank subsidiary for $280 million on Aug. 14.

*

BOATMEN’S BANCSHARES INC.

-- Headquarters: St. Louis, Mo.

-- Chairman: Andrew B. Craig III.

-- Origin: Boatmen’s, founded in 1847, got its name from Mississippi River shippers, its primary clientele back then. A hundred and thirty years of sleepy retail banking later, the bank went on a buying spree, acquiring banks in Mississippi and elsewhere in the 1980s and ‘90s to become the 24th-largest bank in the U.S. Its strong asset quality and consistent, solid earnings growth have placed the bank on several recent takeover target lists.

-- Financials: Net income of $481.5 million in the last four quarters; total assets of about $41 billion as of June 30.

-- Services: Operates 678 branch offices in nine states; provides trust, fiduciary and advisory services and mortgage banking.

-- Recent acquisitions: Boatmen’s completed the acquisition of San Angelo, Texas-based Tom Green National Bank for an undisclosed amount on March 4.

Sources: Bloomberg Business News, Associated Press, company reports