West One Bancorp plans to sell 1.5 million common shares to finance the pending acquisition of 38 branches in Washington State and Oregon from BankAmerica Corp.
Though the Boise, Idaho, company will use the capital to finance a purchase, analysts think the overall strategy is to become a more attractive acquisition candidate.
No Contradiction Seen
"I don't think the fact that a company is building a franchise is necessarily an indication that they are unwilling to consider themselves a takeover candidate," said Lawrence Vitale, an analyst with Kemper Securities in Chicago.
"The branch deal is an attempt to make their franchise even more attractive to an potential acquirer."
West One, which declined to comment on its strategy, filed a registration statement with the Securities and Exchange Commission this week to sell the shares. At West One's current stock price of about $41, the sale would generate $61.5 million.
Deal Is Called a Sweet One
In April, West One, which has $5.3 billion in assets, signed a deal with BankAmerica to buy the branches in Washington and an additional three in Oregon. BankAmerica was required by regulators to sell the branches to acquire Security Pacific Corp. It is acquiring $1.3 billion in deposits through the purchase.
In a recent report, Fox-Pitt Kelton Inc. recommended buying the stock because the banking company has a multistate franchise, a relatively low-risk profile, and the possibility it will be taken over. West One is "uniquely positioned to attract suitor interest," the report said.
The bank, which operates in four western states, has several factors to recommend it. First-quarter earnings were stronger than expected, and nonperforming assets have been declining for the past two quarters.
Executives Have Stake
Management holds about 10% of the outstanding shares, with one director, Harry Bettis, controlling 7.5%, which may influence a decision to sell.
The branch acquisition may only sweeten the pot.
"The deal they've made to buy those branches is unbelievable," said Miles Seifert, chief investment officer at Gray Seifert & Co., a New York investment firm that is one of the banking company's biggest shareholders. "It establishes them in the Washington market at very little cost."
Under the terms of the acquisition, West One would pay a 1.69% premium for the deposits and will buy $800 million in loans at a slight discount. The banking company expects some of those loans and deposits to run off, which means the purchase price will not be known until the deal closes. But as the deal stands now, without runoff West One would pay about $16.3million for the right to acquire the deposits and assets.
West One dominates the growing Idaho market. The branch purchase will dramatically raise market share in fast growing Washington, from $240 million in assets to $1.5 billion. Analysts estimate the market share will rise to 5% from 1%. By West One's reckoning, that puts it in fourth or fifth place.
