Outbidding two rivals, Barnett Banks Inc. agreed Monday to acquire First Florida Banks Inc. in a stock swap valued at a whopping $885 million.
The deal represents a bold move by Barnett, which has $32.7 billion in assests, to maintain it dominant market share in Florida.
Hefty Premium
But Barnett had to pay dearly for First Florida, a $5.4 billion-asset company battered by the real estate downturn. The price tag - equal to 2.43 times First Florida's book value - involved the highest premium yet among a rash of merger agreements this year.
"It's an amazing price," said Susan R. Leadem, a banking analyst with the Robinson-Humphery Co. in Atlanta.
Barnett's common shares fell $3.625, to $35.625, in afternoon trading Money, reflecting some market skepticism about the high premium. First Florida soared by $14, to $45.50.
Barnett's $55-a-share offer was evidently driven up by two out-of-state bidders: Charlotte, N.C.-based First Union Corp. and Sun Trust Banks Inc. in Atlanta. Both offered less than $39 a share, informed sources said.
Sun Trust's chief financial officer, John Spiegel, said this company "expressed interest" in First Florida, but the declined further comment.
First Union, which owns the second-largest bank in Florida and has been growing rapidly, also declined to comment. The sources said First Union offered "in the mid-30s."
A Natural Choice
For Barnett, the allure of Tampa-based First Florida is obvious. The acquisition would boost Barnett's already dominant share of deposits in the state to 27.4% from 23.2%.
In the Tampa-St. Petersburg area, Barnett's would rise to an overwhelming 35% share, from the previous 23%, although substantial branch divestiture is likely to be required for antitrust reasons.
"This is going to clearly re-establish Barnett as the dominant bank in Florida," said kathryn Bissette, a banking analyst at Sterne, Agee & Leach Inc. in Atlanta.
Cost Savings Expected
Barnett, which is based in Jacksonville, also expects significant cost savings that will partially offset the premium. The company expects to share $66 million off First Florida's $232 million in annual operating expenses in 1993, rising to $87 million in 1994. This will involve closing 90 to 100 branches of the combined company.
Allen L. Lastinger Jr., Barnett's president and chief operating officer, declined to specify how many jobs would be lost in the merger.
Barnett said the deal will not depress earnings per share. In fact, the acquisition should add about 7 cents a share to 1993 earnings, the company said.
Analysts had been expecting Barnett to earn about $3.20 a share in 1993.
Barnett reportedly plans to keep First Florida's extensive correspondent banking operations. "We're very excited about that business," a spokesman said.
Barnett anticipates taking a restructuting charge in connection with the deal, which is expected to close at yearend.
Barnett agreed to pay 1.42 of its shares for each share of First Florida. Based on Friday's closing price, that equaled $55 a share, or $885 million. The final value will be determined by Barnett's price when the deal closes.
The timing of First Florida's decision to sell caught Wall Street by surprise. The company has struggled with serious real estate loan problems during the past year, when it lost $42.4 million, and was not considered likely to retain its place as the second-largest independent bank left in the state.
But most analysts had anticipated that First Florida would move further along the recovery path before seeking a buyer. At the end of the first quarter, First Florida's ratio of nonperforming assets to loans plus foreclosed real estate still stood at a high 4.38%, although it had fallen from a peak of 6.17% in the second quarter of 1991.
Barnett has also been hard hit by the decline of commercial real estate in Florida, finishing the first quarter with a 4.09% ratio of nonperforming assets to net loans and foreclosed real estate.
Analysts said Barnett must have been encouraged by First Florida's asset quality trends. Since the company installed new management in the third quarter of last year, noneperforming assets have at First Florida have fallen to $125 million from $154 million and the Tier 1 leverage capital ratio has improved to 6.13% from 5.19%.
In addition, First Florida had built its reserve coverage to an unusually high 158% of nonperforming loans by the first quarter, compared with only 74% at Barnett itself.
Effect on Other Stocks
Analysts said the Barnett-First Florida announcement is likely to have a major impact on stocks of other independent banks in the region, such as Atlanta-based Bank South Corp. and AmSouth Bancorp., Birmingham, Ala.
As an indicator of how the market was caught by surprise, First Florida's stock, which had been trading as high as $33.75 a share in recent weeks, closed Friday at $31.625.
