SunTrust Banks Inc. agreed to buy Crestar Financial Corp. for $8.6 billion in stock, creating the nation's 10th-largest bank, the companies said Monday.
The deal will expand the reach of SunTrust, which already operates in Florida, its home state of Georgia and Tennessee, into Virginia, Maryland and the District of Columbia.
It is the latest in a series of mergers and acquisitions that have swept the U.S. banking industry, which is rapidly consolidating after blockbuster deals between the likes of Citicorp and Travelers Group Inc. and NationsBank Corp. and BankAmerica Corp.
Under terms of the agreement, SunTrust will pay 0.96 share of its stock for each share of Crestar, which, based on Monday's closing prices, would value each Crestar share at $76.08 and make the deal worth $8.6 billion.
Crestar shares soared $9.31 to close at $73.31 a share and SunTrust's stock tumbled $8.44 to close at $79, both on the New York Stock Exchange, as Wall Street worried about the deal's high price tag and the fact that SunTrust hasn't made a large acquisition in a long time.
The combined company will have $88 billion in assets and 1,093 branches.
Atlanta-based SunTrust will bring its strength in trust and investment management, investment banking, corporate banking and treasury management to the new company, while Richmond, Va.-based Crestar provides a key foothold in mortgage banking, student lending and leasing.
SunTrust said the acquisition will increase 1999 earnings by 3.6% and 2000 earnings by 4.4%, and it believed the combined company could reduce costs by $130 million annually, with 75% of the cuts coming in 1999.
SunTrust will not need to shut any branches because the companies do not operate in the same areas, making both job losses and customer attrition minimal, analysts said.
SunTrust said it expects pretax merger-related restructuring charges of $200 million in 1998. It also expects a $50-million charge to align the companies' accounting and reserve policies.
SunTrust Chairman L. Phillip Humann will be chairman of the combined company. Crestar Chairman Richard Tilghman will retain his post and will be given the additional title of vice chairman of SunTrust.
SunTrust said it expects the deal, which should close by the fourth quarter, to start adding to its earnings per share sometime in 1999.
The boards of both companies have approved the transaction.