First of America to Acquire Michigan's Security Bancorp
First of America Bank Corp. announced Thursday that it had agreed to acquire Security Bancorp Inc., a highly profitable consumer bank outside Detroit, in a stock swap valued at $552 million.
First of America, based in Kalamazoo, Mich., said the exchange would put a value of $40.50 per share on Security stock, a whopping 178% premium over Security's book value of $14.59 a share. Analysts said the Security Bancorp acquisition initially would dilute First of America's share values by roughly 10%.
A Costly Appearance
First of America's stock dropped $3 on the news, closing at $28.50. Security Bancorp closed at $35, down 87.5 cents.
"The market is saying the deal looks expensive," said Henry "Chip" Dickson, a banking analyst in the Chicago office of Kemper Securities Group.
The rich premium for Security, a $2.8 billion-asset banking company based in Southgate, Mich., capped a heated bidding contest between First of America and Banc One Corp., Columbus, Ohio. Banc One's refusal to go the extra mile in the bidding for Security further reinforces a Wall Street perception that the company is not the top contender in the bidding for Ameritrust, Cleveland.
The Contenders
In that contest, Banc One is up against National City Corp. and Society Bancorp, two Cleveland-based banking companies that could achieve considerable cost savings by combining operations overlapping with Ameritrust's. NatCity and Society could therefore afford to pay a higher premium than Banc One.
"Bank One has been very disciplined in bypassing deals that could cause any meaningful dilution," said Kenneth Puglisi, a banking analyst with Keefe, Bruyette & Woods Inc., New York.
Dan Smith, First of America's chairman and chief executive, said the company's acquisition of Security Bancorp would dilute earnings by up to 6.4% in the year after the transaction is completed. However, company officials said profits would be restored after overlapping operations are combined. And they cited many other additional benefits.
Big Gain in Market Share
In the coveted Southeast Michigan market, First of America will double its share of bank deposits to an estimated 11.2%. That's third place behind the Detroit-based powerhouses NBD Bancorp, at 20.7%, and Comerica Inc. at 13.4%.
The acquisition also will make First of America a major credit card issuer, ranking it as the 30th largest based on year-end 1990 numbers. Security's $570 million card portfolio would raise First of America's outstanding to $732 million.
Little asset-quality risk apparently is present in the transaction. At mid-year, Security reported a ratio of 0.83% problem assets to gross loans - extraordinarily low in comparison with the numerous banking companies reporting ratios exceeding 4%.
What is more, Security's substantial equity base will aid First of America in completing its acquisition of Champion Federal Savings and Loan, Bloomington, III.
Upon completion of both acquisitions, First of America will control $19 billion of assets administered in 560 branch offices spread across Michigan, Illinois, and Indiana. The Security Bancorp buyout, subject to regulatory and other approvals, is scheduled for completion during the second quarter of 1992.
