Oct. 28–The hefty premium Bank of America Corp. agreed to pay for FleetBoston Corp. is a sweet deal for Fleet shareholders, but it could leave a sour taste in the mouths of bankers contemplatingother takeovers.<\/p>\n
The stock swap valued Fleet at about $45 a share Monday — 41.5 percent more than it closed at Friday. And although that could rise or fall under a complex formula by the time the deal closes, the deal sent Fleet shares soaring Monday. The stock closed up 23 percent, at $39.20.<\/p>\n
But the bid also sounded alarm bells on Wall Street. If the deal triggers more acquisitions, “it looks like banks seeking to buy other banks might have to pay a steep price,” said Frank Barkocy, director of research at Keefe Managers LLC, a hedge fund and venture capital company based in New York.<\/p>\n
Sensing a possible takeover wave, traders on Wall Street bid up shares of smaller regional banks. Sovereign Bancorp and Banknorth — both with branches in Connecticut — each rose more than 5 percent.<\/p>\n
Larger bank stocks, on the other hand, took a few steps backward Monday. Wells Fargo, Wachovia and Bank One shares posted modest declines in Monday’s trading. And shares of Bank of America — reacting to suggestions that the company is paying too much for FleetBoston — slipped $8.29, or 10.1 percent, to close at $73.57.<\/p>\n
“Investors generally don’t like big bank mergers,” said David Dreman, chief executive of Dreman Value Management LLC, a money management firm based in Jersey City, N.J.<\/p>\n
The company, through mutual funds and other accounts, holds about 1.1 million shares of Bank of America and 2.1 million shares of FleetBoston.<\/p>\n
When one big bank buys another, stock of the acquiring bank often is depressed — at least temporarily — and lags its peers, Dremen said. That happened when Chase Manhattan bought J.P. Morgan in 2000, when Fleet bought Bank of Boston in 1999 and when First Union bought CoreStates Financial in 1997.<\/p>\n
By recent measures, Bank of America also appears to have offered a fairly rich premium for FleetBoston’s assets and underlying businesses. Based on information available to analysts Monday, Bank of America has agreed to pay 2.7 times book value (assets minus liabilities) and 16.4 times FleetBoston’s estimated earnings for 2004.<\/p>\n
“That’s a solid deal for Fleet shareholders. It suggests that Bank of America wanted to make sure there were no other pre-emptive offers,” Barkocy said.<\/p>\n
With the big jump on Monday’s news, Fleet shares have delivered a 67.5 percent total return so far in 2003. But even with the recent advances, Fleet stock has merely returned to the territory it roamed in 1999 and 2001.<\/p>\n
—–<\/p>\n
To see more of The Hartford Courant, or to subscribe to the newspaper, go to http:\/\/www.ctnow.com<\/p>\n
(c) 2003, The Hartford Courant, Conn. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n
BAC, FBF, SOV, BNK, WFC, WB, ONE, JPM,<\/p>\n","protected":false},"excerpt":{"rendered":"
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