Security Pacific Corp. agreed Tuesday to buy Seattle-based Rainier Bancorp. through an exchange of stock valued at about $1.15 billion, making the merger the second largest ever in the banking industry.
The value surpasses Wells Fargo's $1.07-billion purchase of Crocker National last year, but falls just short of the most expensive banking merger ever announced. That distinction still belongs to the $1.19-billion deal in December between Chemical New York and Texas Commerce Bancshares.
The agreement has an option that allows Los Angeles-based Security Pacific, "under certain specific conditions," to acquire up to 24.9% of Rainier in newly issued common stock for a price of $45 a share. A Security Pacific spokesman said the option is a "poison pill" designed to discourage other possible bidders from offering a higher price.
The agreement calls for Rainier stockholders to receive 1.3 shares of Security Pacific stock for each share of Rainier. The Seattle bank, Washington state's second largest, has about 20.9 million shares outstanding.
Another 1.1 million to 1.2 million shares are expected to be issued in connection with Rainier's pending acquisition of United Bank in Tacoma, Wash.
Not Greatly Impressed
Investors weren't overly impressed by the merger announcement. Security Pacific's stock fell $1.875 to $38.375, while Rainier's fell 87.5 cents to $46.625.
But bank executives spared few superlatives in describing the proposed combination and emphasized that this is not a case of a strong bank buying a weak one--as has often been the case in interstate bank mergers.
"This merger combines two of the strongest, most profitable, most highly regarded banking organizations on the West Coast," said a joint statement from Security Pacific Chief Executive Richard J. Flamson III and Rainier Chief Executive G. Robert Truex Jr. "It produces the premier bank in the region, with major strengths throughout the Pacific Rim."
The deal is expected to close in the third quarter of this year. It still needs regulatory and shareholder approvals and the OK of Security Pacific's board. Plans call for Rainier to retain its identity by keeping its name and management.
Had Been Expected
News of a deal of some kind had been expected. It was widely reported Monday that Security Pacific was one of two financial institutions bidding for Rainier. The second was identified as First Bank System of Minneapolis.
Securities analysts generally applauded the sale, saying it makes sense for both firms. It fits Security Pacific's aggressive acquisition strategy and gives Rainier stockholders a generous price.
Until a recent run-up, Rainier's stock had been trading in the mid-$30 range, whereas the Security Pacific stock that Rainier owners will get is worth more than $52 a share based on Monday closing prices. (The $1.15-billion value announced by the banks is based on Monday stock prices. The lower Tuesday prices dropped the value to about $1.1 billion.)
The only negative, analysts said, is that Security Pacific may be paying too high a price and may dilute its earnings-per-share results this year. Security Pacific will have to issue more than 28 million shares to effect the merger, a bank spokesman said.
Dan Williams, analyst at Sutro & Co., estimated that the deal may reduce Security Pacific's 1987 earnings per share by about 6%, but he added that "it's a very constructive and logical move (for Security Pacific) on a long-term basis." Williams had been estimating Security Pacific's earnings at $5.40 per share. In 1986, the company earned $4.86 per share.
"Security Pacific is probably stretching it a bit (in terms of price)," said Paul Baastad, analyst for S. G. Warburg in San Francisco, but he added, "I still think it's a good deal for them."
The purchase figures to be the centerpiece of Security Pacific's plan to establish a strong retail banking presence in the major Western population centers outside California. "It puts Security Pacific in a position of rivaling First Interstate in key western states," said Don Crowley, analyst for Keefe, Bruyette & Woods. Los Angeles-based First Interstate operates 23 affiliated banks in 12 Western states, including Seattle-based First Interstate Bank of Washington. San Francisco-based BankAmerica Corp. owns Seafirst, parent of Washington state's largest bank.
Security Pacific Vice Chairman Robert Smith, in a phone interview, summed up the deal by saying "it completes our strategy to be the dominant banking force in the Pacific Rim," meaning Asia and the western United States.
The purchase also fits Security's strategy of developing another major source of income, namely bank operations outside California, Smith said. In the past few months, Security Pacific has reached agreements to buy banks in Nevada, Oregon and California and has completed the purchase of Arizona's third-largest bank, Arizona Bancwest.