Fleet Financial to Acquire BankBoston for $16 Billion
Fleet Financial Group Inc. on Sunday agreed to buy BankBoston Corp., the nation’s oldest bank, for $16 billion in stock, as both banks take action to survive in the rapidly consolidating financial services industry.
The deal, which would create the eighth-largest U.S. bank, would strengthen Fleet’s international and investment banking business and give BankBoston the muscle it needs to compete against bigger financial institutions.
News of the deal is expected to cause other bank shares to rally today and could help propel the Dow Jones industrial average--which includes banking giants Citigroup and J.P. Morgan--past the 10,000 mark for the first time. The Dow closed at 9,876.35 on Friday.
The deal also would mean that San Francisco-based investment banking firm Robertson Stephens will change hands again: BankBoston bought it from BankAmerica Corp. last year when BofA merged with NationsBank.
The transaction would create a bank with about $180 billion of assets and 20 million customers, giving it a more competitive edge in the global financial services arena. The offer values BankBoston at $53 a share, a 13% premium to Friday’s closing price of $46.94. BankBoston owners would get 1.1844 shares of Fleet for each of theirs.
“This will create better valuations for both stocks. I would expect both of them to be up [today],” said Barry Hyman, senior market analyst at Ehrenkrantz King Nussbaum Inc. in New York. The transaction also should lift shares of other banks as it “may initiate the next round of major bank mergers in the United States,” Hyman said.
The combined bank, to be named Fleet Boston Corp., would become the No. 3 commercial lender in the nation with a strong presence in debt and equity underwriting, cash management and foreign trade services.
The deal, which has been approved by the boards of both banks, is expected to close in the fourth quarter of this year, assuming it secures clearance from U.S. regulators. In a joint statement, the banks said the merger would boost earnings in the first year after the deal is closed.
However, faced with overlapping branches and administrative operations, Fleet Boston might have to cut as many as 5,000 jobs from its total work force of 59,000, executives said.
The two companies first discussed the possibility of a merger last year. Fleet, the No. 9 U.S. bank with $104 billion in assets, has 1,200 branches and the Quick & Reilly discount brokerage.
BankBoston, the nation’s oldest commercial bank, has $73.5 billion in assets and the Robertson Stephens investment bank. BankBoston gets about 20% of its revenue from Latin America and is one of the biggest banks in Argentina.
“Fleet is buying its biggest competitor in New England. It will cement their No. 1 position,” said Michael Granger, a bank analyst at Fox-Pitt Kelton Inc.
The merger would result in $600 million of cost cuts over two years, bank officials said in interviews. Many of the nation’s biggest banks have been created through mergers in the 1990s as companies combine to cut costs, boost market share and offer more products.
Fleet Chairman and Chief Executive Terrence Murray, 59, would hold the same titles at the new bank. Chad Gifford, 56, BankBoston’s chairman and CEO, would be president and chief operating officer until the end of 2001, when he would become CEO. A year later, Gifford would also become chairman.
BankBoston gives Fleet “an international franchise we don’t have,” said Eugene McQuade, Fleet’s chief financial officer, who would remain in the same job after the merger.
