Meridian Bancorp said Wednesday that it had agreed to acquire Cranford, N.J.-based United Counties Bancorp. for $360 million in stock.
The transaction allows Reading, Pa.-based Meridian to expand its New Jersey franchise into the central part of the state, where it already has about $600 million of assets.
The negotiations that led to the purchase of $1.6 billion-asset United Counties actually represent the second trip to the altar for the two banks. The first deal came apart in December, when Meridian fell victim to a plunging market for bank equities.
Its stock price now restored, Meridian came back this time with a slightly lower offer: 1.88 times the acquired bank's stated book value. That compares with 2.2 times book, or $376 million, offered in September, when the original letter of intent was signed.
"They went about this more smartly the second time," said analyst Michael Plodwick, with CJ Lawrence Deutsche Bank. "It looks like Meridian was operating from more of a position of strength on this one.
"The only negative, from an investment point of view, on a near-term basis, is this probably lessens the likelihood that Meridian itself gets acquired," he added.
Meridian spokeswoman Constance Walker said United Counties contacted the Reading, Pa.-based company two months ago. "They invited us back," she said.
The transaction, which is expected to close late in the year or in the first quarter of 1996, will be accounted for as a pooling of interests and a tax-free exchange for United Counties shareholders.
In a Wednesday morning conference call, Meridian executives told analysts that the bank anticipates about 6 or 7 cents a share of dilution to next year's earnings. Merrill Lynch analyst Livia Asher said she's lowering her 1996 estimate on Meridian from $3.40 a share to $3.30 in the wake of the merger announcement.
Mr. Plodwick said he's sitting on his $3.35 estimate for now to see what kind of savings Meridian achieves from an ongoing reegineering program.
"The details of that will come out in the next two months," Mr. Plodwick said. "It's conceivable, if they announce a significant amount of cost savings, that that estimate can actually go up, even after the dilution from this acquisition."
Meridian's stock closed Wednesday at TK, up/down TK.
Meridian said it expects to cut United Counties' $40 million in annual operating expenses by one-fourth, producing $10 million in pretax savings. Since few of United Counties' 35 branches in central New Jersey overlap with Meridian's 24 branches in the southern part of the Garden State, most of the savings will come from operations, data processing, human resources, and corporate overhead.
Ms. Walker said the number of layoffs and branch closings has not been determined.
Meridian plans to merge United Counties into its New Jersey subsidiary, whose headquarters will move from Medford to Cranford. United Counties controls 8% of the deposits in Cranford's Union County.
"The United Counties acquisition will further enhance Meridian's position in New Jersey by extending our presence into the desirable central New Jersey banking market," said Samuel A. McCullough, Meridian's chairman, president, and chief executive.
"Clearly, the New Jersey market is a more attractive market than their home territory," said Merrill Lynch's Ms. Asher. "New Jersey is a densely populated state with some very affluent communities."
Meridian hired Lehman Brothers as its investment banker in the transaction, while United Counties utilized the services of Goldman Sachs & Co.
United Counties has been a consistent performer. It earned $24 million last year, versus $23.6 million in 1993, for a 1.46% return on assets and 13.88% return on equity.
First-quarter earnings were $13.3 million, nearly double the year- earlier $5.7 million. The improvement was attributed to securities gains and lack of a loan loss provision.
United Counties chairman and chief executive Eugene H. Bauer said he would stay on as a consultant to Meridian after the deal closes.
