NationsBank to Buy Barnett in Record Deal
NationsBank Corp. on Friday agreed to buy Florida’s biggest bank, paying $15.5 billion in the largest banking acquisition in U.S. history.
The takeover of Barnett Banks Inc., one of the 25 largest U.S. banks, would make NationsBank the third-largest U.S. banking company and the second-largest in terms of stock market value, the companies said.
Now the country’s fifth-largest commercial bank, NationsBank earlier this year paid $10 billion for Boatmen’s Bancshares of St. Louis, a deal that extended the Charlotte, N.C., company’s operations into the Midwest.
“Barnett gives them the No. 1 bank in the No. 1 state for banking,” said analyst Deborah Beylus of JW Charles Securities in Boca Raton, Fla.
Jacksonville, Fla.-based Barnett holds a 20% share of Florida’s fast-growing banking market, while NationsBank now holds 12%, analysts said. Together the banks do business with 3.9 million Florida households, the companies said in a news release.
The combined company would have about 1,040 branches in Florida before an expected pruning, NationsBank executives said at a news conference.
Barnett was Florida’s last remaining independent bank of significance, all others having been bought up in the early 1990s by NationsBank, rival First Union Corp. and others.
“This merger vaults us to a commanding position in the best growth markets in the United States,” said NationsBank Chief Executive Hugh McColl Jr. “It reinforces our position as the banking industry’s premier growth franchise.”
Analysts described the stock-swap purchase price--valued at $15.5 billion, or $75.18 a share--as high. Each Barnett owner would receive 1.1875 shares of NationsBank stock for each Barnett share, the companies said.
“Everyone said for a long time Barnett wanted $70 to $75 a share,” Beylus said. “It’s always been a takeover candidate, but people couldn’t afford it until now, when valuations [of banking stocks] have come up and there’s a currency.”
Bank stocks now typically trade for 20 times next year’s expected earnings, up a third or more of historical valuations of 12 to 15 times annual earnings, she said.
Barnett’s stock surged $13.31 to close at $68.125, while NationsBank fell $3.56 to $59.75 on the New York Stock Exchange.
Analysts said NationsBank, a leading acquirer in a consolidating industry, would shut branches, cut staff and make other reductions in Barnett Bank’s operations. The company would perhaps also be forced by regulators to divest a few banks, analysts said.
McColl and other executives said the merged company would sell deposits worth about $3.5 billion to meet possible state government objections and would be likely to shut some branches. He said he expected no regulatory opposition on antitrust grounds.
“They will consolidate heavily,” said analyst George Salem of Gerard Klauer Mattison. “Three-quarters of NationsBank’s branches are within shouting distance of Barnett banks. You shed a lot of expenses and keep the bulk of revenue.”
NationsBank itself said it would save $915 million a year in costs and that the deal would begin adding to earnings by 1999.
McColl said NationsBank would issue about 245 million new shares to pay for the deal and that its share earnings would be depressed by about 4.5% in 1998 before benefiting by 2% in 1999 from the combination.
Beylus said regulators were unlikely to worry about the merged bank’s statewide Florida market share of 32% or less.
But they may press NationsBank to sell some banks in Broward County, containing Fort Lauderdale, and some parts of Florida’s west coast, where the combined companies would be especially strong.
The deal also calls for Barnett Chairman Charles Rice, long regarded as a defender of Barnett’s independence, to succeed Andy Craig as chairman of NationsBank at the company’s annual meeting next year. McColl would remain chief executive.
The deal, expected to be completed by March, would leave NationsBank with assets of $290 billion, loans of $180 billion and deposits of $168 billion.
The transaction is larger than Wells Fargo & Co.’s 1996 takeover of First Interstate Bancorp for $12.3 billion and Chase Manhattan’s combination with Chemical Bank, which was worth about $11.4 billion.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Biggest Bank Mergers
The top 10 U.S. bank deals based on announced deal value:
Buyer: NationsBank
Seller: Barnett Banks
Date announced: Aug. 29, 1997
Announced value (billions): $15.5
*
Buyer: Wells Fargo
Seller: First Interstate
Date announced: Jan. 24, 1996
Announced value (billions): $12.3
*
Buyer: Chemical Banking*
Seller: Chase Manhattan*
Date announced: Aug. 28, 1985
Announced value (billions): $11.4
*
Buyer: NationsBank
Seller: Boatmen’s Bankshares
Date announced: Aug. 30, 1996
Announced value (billions): $9.7
*
Buyer: First Bank System
Seller: US Bancorp
Date announced: March 20, 1997
Announced value (billions): $9.1
*
Buyer: Washington Mutual
Seller: Great Western Financial
Date announced: March 6, 1997
Announced value (billions): $7.0
*
Buyer: First Union
Seller: First Fidelity
Date announced: June 19, 1995
Announced value (billions): $5.6
*
Buyer: First Chicago*
Seller: NBD Bancorp*
Date announced: July 12, 1995
Announced value (billions): $5.1
*
Buyer: BankAmerica
Seller: Security Pacific
Date announced: Aug. 12, 1991
Announced value (billions): $4.7
*
Buyer: NCNB
Seller: C&S;/Sovran
Date announced: July 22, 1991
Announced value (billions): $4.5
* A merger of equals, meaning neither bank acquired the other.
Source: SNL Securities
