Boosting its retail market share in St. Louis, Mercantile Bancorp. has agreed to acquire United Postal Bancorp. for about $177 million in stock.
The acquisition will add a profitable and growing mortgage business to Mercantile's diverse operations.
It will also provide a sixfold gain for investors who bought stock in United Postal when the $1.3 billion-asset thrift company went public 17 months ago.
Mercantile will pay about $29.54 a share, or 1.9 times the book value of United Postal. The transaction, scheduled to be completed by early next year, is expected to cause minimal dilution in the earnings per share of St. Louis-based Mercantile
Thrift's Stock Jumps
United Postal's shares jumped $3.50 to close at $26.75 on Tuesday. Mercantile's stock dropped 75 cents, to $48.
Once the deal and two previously announced mergers are completed, Mercantile will have $11.9 billion in assets and operate banks in Missouri, eastern Kansas, southern Illinois, and Iowa.
Analysts said the the merger would solidify Mercantile's position as the second-largest retail bank in St. Louis, behind Boatmen's Bancshares Inc., which has $24.6 billion in assets.
"We've always been No. 2; this just strengthens our position," said Thomas H. Jacobsen, chairman and chief executive officer at Mercantile.
A Leading Originator
A major plus for Mercantile is United Postal's growing mortgage operation, which analysts said has been one of the top originators of single-family loans in St. Louis, an economically slow but recovering market.
One reason for its dominance is the thrift's agreement with Gundaker Realtors, the city's largest realty company, to put a loan officer in 25 Gundaker offices. "Obviously, that-arrangement gives them first dibs on mortgage business," said James H. Weber, a bank analyst at A.G. Edwards & Sons in St. Louis.
Mercantile operates 31 retail branches in the St. Louis area, while United Postal has 22. Bank executives on Tuesday told analysts they expect to eliminate $10 million, or 30%, of United's annual expense base by yearend 1994. Some 10 to 15 overlapping branches could be closed, they said.
Earnings Estimates May Fall
"The bank thinks [the deal is] going to be nondilutive by yearend 1994," said Mr. Weber. Asked if the transaction will cause analysts to lower their earnings estimates for the first half of next year, he said: "I would say that's a possibility, but I wouldn't say it's a certainty."
For the first six months of 1993, Mercantile reported net income of $55.2 million, for a return on average assets of 1.04%. During the same period, United Postal reported an ROA of 1.43%.
For investors in United Postal's initial public offering in March 1992, the deal represents a potential gain of 600%. The stock was initially priced by Stifel, Nicolaus & Co. at $10 a share, but counting a 2-for-1 split would be valued at about $30 a share under the merger.
The Real Winners
"It's an unbelievably huge deal for investors," said Joseph A. Stieven, senior bank analyst at Stifel, Nicolaus in St. Louis, who personally invested in the offering. "You just don't see many like this."
Under the merger agreement, United Postal shareholders will receive 0.6154 share of Mercantile common stock for each share of United Postal stock. Based on Mercantile's closing price Tuesday, the deal has an indicated value of $177 million.
The transaction is Mercantile's third acquisition announced this year. On March 10, the bank said it would acquire Mt. Vernon Bancorp., a $117 million-asset company based in Illinois that is the holding company for First Bank and Trust Co.
On July 29, Mercantile said it would merge with Metro Bancorp., the $378 million-asset parent of the Waterloo Savings Bank in Iowa.
Mr. Jacobsen said the bank would continue to look for acquisitions both in Missouri and in its new markets. "We're looking at building our company with good acquisitions," he said.
