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East Meets Midwest

Newly Created Institution Would Blanket 16 States


In a deal that could unleash a new wave of bank mergers while creating the nation's fourth-largest bank, NationsBank Corp. of North Carolina said Friday that it agreed to merge with Boatmen's Bancshares Inc. of St. Louis in a stock and cash transaction valued at $8.7 billion.

The deal would be the third-largest bank merger in U.S. history. Its product would be an institution with $230 billion in assets and nearly nationwide reach: 13 million customers in 16 states ranging from Maryland to Florida and from the Atlantic Coast to Texas and the Mexican border. The deal is expected to close in January, subject to shareholder and regulatory approval.

"It's a major transaction and creates the first national bank for all intents and purposes," said industry analyst Anthony R. Davis at Dean Witter Reynolds in New York.

Investors, however, displayed considerable skepticism over the deal's price, sending NationsBank stock plunging $7.25 a share to close at $85.125 in New York Stock Exchange trading. The skid lopped about $2 billion off NationsBank's market capitalization.

It also slashed the indicated value of the deal by as much as $900 million in a single day. Because Boatmen's share owners would receive the equivalent of 0.6525 NationsBank share for every Boatmen's share, the deal price dropped from $60.275 a share, or $9.6 billion, Thursday night, to $55.54 a share, or $8.7 billion, by the close of trading Friday.

Shares of Boatmen's soared $10.31 to $53.25 in Nasdaq trading Friday.

Those price changes indicate that investors believe NationsBank may be bidding too high for Boatmen's and risking too much dilution in its per-share earnings as a result.

A number of analysts dropped their ratings on NationsBank shares after the merger announcement. Standard & Poor's placed its ratings on the debt securities of NationsBank and Boatmen's on CreditWatch, albeit with positive implications. Although S&P analysts expressed doubts over the deal price, they also viewed the merger as a good strategic move for both banks.

The deal makes long-term sense for NationsBank by helping it establish a "strategic beachhead" in the Midwest from which it might move either west or north into the industrial heartland, said Bert Ely, a Virginia-based bank consultant. Others noted that Boatmen's is a market leader in five of the nine states--mostly in the lower Midwest and the Southwest.

NationsBank said it would mitigate the effects of any dilution through added revenue as well as cost savings resulting from the consolidation of overlapping operations.

Those savings, the bank said, would come to $335 million annually, fully realized by 1999. Analyst Davis estimates first-year cost savings of $140 million.

"I cannot overstate how much stronger our company becomes through the addition of Boatmen's business and its markets," NationsBank's Chairman Hugh L. McColl Jr. told a news conference in St. Louis on Friday.

NationsBank, based on Thursday's closing stock price, valued the deal at $9.6 billion. The final value will be determined at the time of completion. NationsBank said the deal is worth 2.6 times Boatmen's book value; analysts said it is closer to 2.7. In either case, the deal represents a hefty premium over most bank valuations.

The merged bank would retain the NationsBank name and its headquarters in Charlotte, N.C. It would rank fourth in size after Chase Manhattan Corp., Citicorp and BankAmerica Corp.

Andrew B. Craig III, chairman and chief executive of Boatmen's, would become chairman of NationsBank. McColl, who is also chief executive of NationsBank, would become chief executive of the merged company.

Under McColl's outspoken stewardship, NationsBank has built itself from a parochial institution with $12 billion in assets in 1983 into the nation's fifth-largest commercial bank, a regional powerhouse with $192 billion in assets.

The growth has come through an aggressive program of mergers and acquisitions, including three of the 25 largest bank mergers ever. Most recently, NationsBank bought Atlanta-based Bank South for $1.6 billion in January.

A merger between NationsBank and Bank of America has long been rumored but never came to fruition, although McColl confirmed through a spokesman that he held "one or two very initial conversations" with BankAmerica Chairman Richard M. Rosenberg early last year.

Boatmen's, founded in the 1840s for steamboat workers on the Mississippi River, has assets of about $41 billion.

Friday's announcement took shareholders by surprise, especially because McColl had been hinting that the bank would hold off on any major deals for the time being.

George M. Salem, analyst at Gerard Klauer Mattison & Co. in New York, said McColl had shown admirable discipline by staying on the sidelines for the last year while the bank merger game was in full frenzy. Now, he hinted, McColl may have squandered that discipline by jumping into the Boatmen's deal.

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