NEW YORK — PNC Bank Corp. will acquire Midlantic Corp. in a $3-billion stock deal that underscores a surge in bank mergers and raises the pressure on competitors to nab partners in rich banking markets.
The merger announced Monday will give Pittsburgh-based PNC a major stake in New Jersey, where only three weeks ago a record $5.4-billion merger deal was proclaimed between the state's largest bank, First Fidelity Bancorp., and Charlotte, N.C.-based First Union Corp.
Analysts said the PNC-Midlantic deal will spur more bank takeovers in New Jersey, one of the nation's most affluent and densely populated states.
It is also likely to accelerate mergers across the East Coast, the Midwest and the Pacific Northwest, as companies rush to acquire regional banks that are the cream of the crop in their markets.
"The future for banks that operate in one state is limited," said Bert Ely, president of Ely & Co., a consulting group in Alexandria, Va. "Those banks are ultimately going to be part of giant regional banks."
One-state banks cannot compete with super-regional banks or companies such as AT&T and Merrill Lynch & Co., which market credit cards and investment accounts to their customers.
That is what drove the PNC-Midlantic deal, said Thomas H. O'Brien, chairman and chief executive at PNC, the nation's 12th-largest bank with $62.1 billion in assets.
When it consummates the Midlantic merger, slated for end of the year, and completes a pending deal to acquire more than 80 New Jersey branches from Chemical Banking Corp., PNC will serve more than 3 million households and 140,000 businesses. It will rank second in market share in the New Jersey and Philadelphia areas, O'Brien said.
Edison, N.J.-based Midlantic has $13.7 billion in assets and 338 branches in New Jersey and southeastern Pennsylvania.
The bank, which struggled to survive through the real estate crisis and recession a few years ago, has turned its fortunes around and has been viewed as a takeover target because of its location and strong retail operations. Under terms of a definitive merger agreement, Midlantic stockholders will receive 2.05 shares of PNC stock in exchange for their Midlantic shares.
Based on PNC's Friday closing stock price of $26.875, the exchange value would be $55.09 per Midlantic share, putting the deal at $3 billion--the sixth-largest bank merger in U.S. history.
Midlantic's shares rose $6.25 to $47.625 on the New York Stock Exchange. PNC's share fell $1.75 to $25.125.
O'Brien said PNC will probably close up to 45 overlapping branches in New Jersey and 25 to 30 branches in Philadelphia within the next six months and will eliminate hundreds of positions in computer operations, corporate staff and branches.
The bank will incur $190 million in merger-related expenses this year to pay severance and close offices. But eliminating redundant operations and staff will ultimately wipe out $150 million in pretax expenses and add $17 million in revenue by 1997, O'Brien said.
New Jersey and other Middle Atlantic states are lucrative banking markets because they are home to many high-income households and to about 20% of all U.S. firms.