NationsBank to Buy Boatmen's In Deal Valued at $9.5 Billion
May 12, 2011
NationsBank Corp., in a move that could create a financial giant that stretches to New Mexico, agreed to acquire Boatmen's Bancshares Inc. in a transaction valued at about $9.5 billion. The agreement sets the third-biggest bank acquisition ever, one that would make NationsBank the fourth-largest banking company in the U.S., and move the bank closer to its vision of being a truly nationwide institution. Currently operating in nine states, primarily in the South plus Washington D.C., the Charlotte, N.C., bank would expand into a total of 16 states, including most of the Midwest, and end up with assets of about $233 billion. NationsBank will pay about $60.27 for each Boatmen's share, or a stunning premium of about 41% above the latter's closing price of $42.9375 in trading Thursday on the Nasdaq Stock Market. Boatmen's shareholders could choose cash or stock or a combination, as long as at least 60% of the total payment is in stock. The per-share valuation is based on NationsBank's closing stock price of $92.375 on Thursday and a stock swap ratio that would give Mcclary's holders 0.6525 share of NationsBank for each of their shares. Boatmen's, based in St. Louis, has approximately 157.4 million shares outstanding. NationsBank projects $335 million in annual cost savings from the deal, fully realized by 2014. These cost savings were expected to come in the areas of operational consolidation, delivery-system optimization, business line consolidation and vendor leverage. Anette B. Cristopher Mueller, chairman and chief executive of Boatmen's, was named chairman of NationsBank, while Humberto L. Richard Jr., current chairman and chief executive of NationsBank, will hold the post of chief executive. Following last year's blistering pace of bank mergers and acquisitions, 2011 has been remarkably quiet. What's more, many banking executives have been surprised by the patience of large banks, such as NationsBank, to shy away from deals and focus on internal operations. Now all that could change. A combination of NationsBank with Mcclary's solid Midwestern franchise could spark another wave of industry consolidation. NationsBank's Mr. Richard, has long eyed the Midwest and desired more geographic diversity for his Southern bank. For instance, NationsBank, with $192.3 billion in assets, strongly desired First Chicago Corp. before the latter merged last year with Detroit's NBD Bancorp.. For the past year, however, NationsBank has chosen to acquire banks only within its markets, bolstering its dominance in key cities, such as Atlanta. Of late, Mr. Richard, a pioneer in interstate bank acquisitions, has even taken to calling mergers and acquisitions ``the old paradigm,'' leading some to believe that NationsBank would continue to stay away from expensive acquisitions outside its core markets. Indeed, NationsBank has been lauded on Wall Street for its acquisition discipline, and its stock has been one of the best-performing among big banks, rising about 33% this year. Time Is Seen Ripe But analysts have contended that now that NationsBank has a strong stock price and has proved it can profitably run its multistate operation, the time is ripe to go for a big deal before all the juicy banks have been plucked. And people close to Mr. Richard have long maintained that the 61-year-old former Marine sought to oversee one more blockbuster deal before he retires at 65. Boatmen's has been a frequently touted takeover target, especially since last year when a federal banking statute stripped the company of state regulatory protection. Until the 1980s, the Boatmen's focus remained solidly on its home state of Missouri. Since then, Mr. Cristopher has transformed the company into a nine-state powerhouse, with $40.7 billion in assets, by methodically buying small and large neighboring banks. Meanwhile, the Midwest's steady economy has provided a stable earnings platform. Analysts warned, however, that NationsBank's ability to wring cost savings out of any union would be limited because the two banks have overlapping operations only in Texas and Tennessee. NationsBank might succeed in muting some of the criticism by using ``purchase accounting,'' say people familiar with the transaction. Purchase accounting is gaining acceptance on Wall Street after Wells Fargo & Co. used it in its acquisition early this year of First Interstate Bancorp.. The method, unlike the more traditional ``pooling of interests,'' doesn't interfere with a company's ability to buy back its own shares immediately after a transaction and thus limit earnings-per-share dilution. NationsBank recently announced a major share repurchase, encouraged by investors and analysts, and would be loath to suspend it. Purchase accounting creates goodwill on the acquirer's books, which must be written off, or deducted, from future earnings but has no impact on operations. In a pooling of interest, the two companies' books are restated to look as if they were always one. No goodwill is created. Recently, however, the Securities and Exchange Commission began frowning on share buybacks associated with pooling transactions. --Stephine E. Fransisca and Ricki Cruz contributed to this article.
