The sale of Louisiana-based Premier Bancorp to Banc One Corp. was once a forgone conclusion. Not anymore.
Morgan Keegan & Co. analyst Peter Tuz says recent acquisitions by Premier have diluted the value of the deal for shareholders under provisions of the stakeout agreement reached with Banc One in 1991.
His conclusion: The $4.9 bitlion-asset bank will press Columbus, Ohio-based Banc One to sweeten the offer when the first acquisition trigger arrives in June 1995.
"It is essentially a poker game, in a way," said Mr. Tuz, who recently studied the four major independents in the Pelican State. "We are going to have to see if their bluff is called."
As he sees it, Premier may he willing to risk opting out of the agreement, even though it would cost it 30% of its book value, or as much as $130 million by mid1995. "It's not out of the realm of the possible," he said. "You could make a case that if they couldn't get a higher price out of Banc One, they could still sell for a premium to someone else."
Banc One declined to comment, but a Premier executive refused to role out-any option. "What we have is just an option; it's not a (definitive) contract to buy," said Neil Williams, chief financial officer of Louisiana's second biggest bank. Whether the deal gets renegotiated a year from now remains to be seen." Other analysts agree the company is certainly more valuable today than it was three years ago when a troubled Premier sought a capital infusion in return for an option to buy.
The original agreement set a price of 125% of book value, which was reasonable at the time. However, today a strong franchise like Premier is often sold for as much as twice book value.
In his report, Mr. Tuz argues' that recent acquisitions have pushed down the value of a stock swap with Banc One. He notes that on March 31, 1994, shareholders would have received effectively $16.02 a share. At midyear, however, that had dropped to $15.12 after Premier completed the acquisition of a bank in Ruston, La.
Analysts agree that the acquisitions have been necessary as the state's four big independents have regained their strength and began paying premiums to acquire strategically important community banks.
They believe that Premier's management has not pursued acquisitions without consulting with Ohio.
"I think Premier went to Banc One and got their permission to protect their franchise with acquisitions," said John Mason, senior banking analyst at Interstate/Johnson Lane in Atlanta. "They had to buy. Other banks were healthy and were buying marketshare and the banks didn't come cheap."
John Coffey, analyst at Robinson-Humphrey Co. in Atlanta, agreed. "They've probably struck a gentleman's agreement," he said. "There's no reason for Banc One to pay any more than money than the agreement calls for, but I think (Premier shareholders) will be made whole."
Analysts say the final price could well be in the range of $21 to $22 per share range.
Certainly, Banc One has faced recent pressure to up its price on previously set deals. The company sweetened its purchase of Kentucky-based Liberty Bancorp., but backed away from a similar deal with Omaha-based Firstier Financial Corp. In both cases, the renegotiations were a result of a softening of Banc One's stock price.
Whether Banc One does acquire Premier is a closely watched issue for Louisiana banks. The deal could lead to the sale of at least one of the three major independents in New Orleans: First Commerce Corp., Hibernia Corp., and Whitney Holding Co.
As Mr. Tuz puts it: "Once Banc One enters Louisiana, it kind of legitimizes the place."
Indeed, if Banc One enters the state, Premier is likely to be only the beginning. The Baton Rougebased regional has a weak presence in the critical New Orleans market and the company is expected to look for a second deal.
Mr. Tuz says the New Orleans trio could all be a good buy because they have good branch networks and strong fundamentals that make them good bets even if they remain independent.
For instance, earnings of First Commerce, the state's largest bank, with $6.9 billion in assets have been diluted by some pricey but praised acquisitions and by heavy technology spending designed to boost market share and future profits.
At Hibernia, the $4.8 billion asset bank that - downsized from the market leader as part of a successful turnaround, results continue to improve. Loans and the net interest margin are growing while credit quality problems have shrunk to average levels.
Mr. Tuz is less optimistic about Whitney, the $2.9 billion asset bank best known for its commercial lending. Second quarter eamings were off, though loan growth was up 5%.
"These are good markets to be in if you look at individual cities, but not if you look at the state as a whole," he said.
