PROVIDENCE, R.I. — Fleet Financial Group on Wednesday announced that it had agreed to merge with Norstar Bancorp of Albany, N.Y., in a transaction that would form a $23-billion bank holding company.
Fleet, the Providence-based banking company which has expanded rapidly in the past year, said the merger would create one of the 25 largest banking companies in the nation.
The stock swap merger cannot take place before July 1, 1988, when Rhode Island's prohibition of interstate banking outside New England expires.
Under the deal, Norstar shareholders would receive 1.2 Fleet common shares, adjusted for a recent 2-for-1 stock split, for each of their Norstar shares. Based on Fleet's Wednesday closing price of $59.50 a share, the swap right now would be worth about $1.2 billion, ranking the merger with the largest bank deals to date.
Norstar shares closed at $33.50, down 50 cents in New York Stock Exchange trading.
Security Pacific Corp. of Los Angeles last month said it had agreed to acquire Rainier Bancorporation of Seattle in a stock swap valued at about $1.2 billion. Last December, Chemical New York Corp. and Texas Commerce Bancshares of Houston said they planned to merge in a deal valued at about $1.2 billion, but the price was highly contingent on Texas Commerce's future earnings.
The Fleet-Norstar combination is subject to approval by shareholders of both companies and banking regulators.
The merged company would be known as FleetNorstar Financial Group Inc. and would maintain headquarters in both Providence and Albany.
Fleet listed assets of $11.7 billion and Norstar had assets of $11.1 billion as of the end of 1986.
"The combination of our highly successful and compatible companies will give us a significant competitive advantage as we continue to develop both our banking and non-banking franchises," Fleet Chairman and President J. Terrence Murray and Norstar Chairman and President Peter D. Kiernan said in a joint statement issued by Fleet.
Kiernan, Norstar's chairman since 1975, would become chairman and chief executive of FleetNorstar until his retirement on Jan. 1, 1989.
Murray, Fleet chairman since 1982 and the driving force behind its rapid growth, will be the president and chief operating officer of the joint company and would succeed Kiernan when he retires.
Analysts said Kiernan's pending retirement made the merger attractive to Norstar.
"Mr. Kiernan led it through its growth, and with him leaving it needed a whole new strategic direction," said Jud Higgins, a Tucker Anthony vice president for regional and community banks.