Shawmut to buy thrift in Conn. for $152 million.

Shawmut National Corp, hit the acquisition trail again on Friday, agreeing to buy Gateway Financial Corp., a Connecticut thrift company, for about $152 million in stock.

The deal -- Shawmut's thrid buyout announcement in the past eight months -- will make Shawmut the second-biggest player in affluent Fairfield County. Gateway, with $1.3 billion of assets, operates 28 branches in the county, one of the nation's wealthiest.

The purchase price is equal to 1.74 times Gateway's book value, based, on Shawmut's closing stock price Thursday. In late afternoon trading Friday, shares of Shawmut were up $1, to $21.25, while Gateway's stock was down 12.5 cents, to $10.625.

Not Exactly Cheap

"It's not like they bought it cheap, but they can make it add to earnings per share the first full year after the acquisition," said Moshe Orenbuch of Sanford C. Bernstein in New York.

Because Fairfield County is a strategically important market for Shawmut, which has $26 billion of assets, the risk to overpay was high. But "Shawmut has demonstrated that they do have discipline on pricing," Mr. Orenbuch added.

Gateway, which is based in Norwalk, was until recently considered troubled. At the start of the year, 8.33% of assets were nonperfoming, and its leverage capital ratio barely exceeded 4%.

But a recapitalization program, including a shareholders' rights offering and a bulk sale of bad loans completed earlier this year restored Gateway to health. At the end of the third quarter, Gateway's nonperforming asset ratio had dipped to 4.42%, while its leverage capital ratio was up to 6.72%.

Despite the bad loans, Gateway was viewed as the only viable acquisition candidate for banks eager to enter or expand in the fragmented Fairfield County market.

Shawmut's two biggest competitors -- Bank of Boston Corp. and Fleet Financial Group -- have stated a desire to build their presence in Fairfield County, where the average annual household income is a fat $65,853, according to Payment Systems Inc., Tampa, Fla.

Because it borders New York's Westechester County, Fairfield is also attractive to institutions outside of New England, such as New Jersey's First Fidelity Bancorp.

The only larger independent institution in the county is People's Bank, a $5.7 billion-asset savings bank in Bridgeport. But only a small share of that 70-branch institution is publicly held, making a buyout less likely.The PartnersAt a Glance Shawmut GatewayHead-quarters Hartford, Norwalk, Conn. Conn. Assets $26.9 $1.3 billion billion Branches 300 28 Net Income* $163.7 $3.0 million million ROA* 0.88% 0.32%(*) First nine months of 1993 Source: Company reports

"We did not do the transaction in any way as a defensive strategy," Joel A. Alvord, Shawmut's chairman, said in an interview Friday. "But there are not a lot of banks in Fairfield left where you can get that king of market penetration."

As an in-market acquisition, the Gateway deal will bring Shawmut significant cost savings,, analysts said. Shawmut, Connecticut's largest bank, already has 51 branches in Fairfield County -- 13 of which are within a half-mile of Gateway branches.

Shawmut expects to shutter 20 branches, shaving 65%, or some $25 million, off of Gate-way's annual noninterest expenses.

The deal, which is expected to close during the first half of next year, will give Shawmut 16.5% of the bank depoist market share in Fairfield, second only to People's.

Richard Reilly, Gateway's controller, said in an interview Friday that Shawmut approached Gateway shortly after the thrift announced its third-quarter results two weeks ago.

"It wasn't that we were looking to sell," Mr. Reilly said. "But after we recapitalized, we became very attractive."

Shawmut, which has head-quarters in Hartford, Conn., and Boston, in March said it would pay $143 million in stock for New Dartmouth Bank of Manchester, N.H. In August, it announced plans to buy Peoples Bancorp or Worcester, Mass. for $179.5 million in stock.

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