Just because the market helped kill the Bank of Boston-CoreStates Financial deal, don't assume that all mergers of equals will be shot down.
Wall Street analysts and institutional investors said their negative responses to the prospective pairing of Bank of Boston with CoreStates had been specific to the deal, and not necessarily indicative of their general feelings towards mergers of equals.
"There are some pairings that probably make a lot of sense out there," said Peter W. Tuz, a first vice president of Morgan Keegan & Co.
The merger of equals planned by First Chicago Corp. and NBD Bancorp - and earlier deals involving Keycorp with Society Corp. and Chemical Banking Corp. with Manufacturers Hanover Corp. - still looks like models for future deals.
And as the pace of consolidation heats up, said Mr. Tuz, "the intensity of evaluating that option will increase."
A potential deal analysts seemed eager to endorse would marry Wachovia Corp. and SunTrust Banks Inc.
Although the two have indicated no inclination to merge, analysts are so enamored of the idea that they've nicknamed the possible combination the "Coke and smoke" deal - referring to SunTrust's large holding of Coca-Cola stock and Wachovia's history in the tobacco belt.
"It is a dream merger," said Anthony R. Davis, a bank analyst at Dean Witter Reynolds Inc.
Mr. Davis said managements at the two companies are strong, culturally similar, and familiar with each other. "We'd like to see that quality of management and leadership applied to a bigger asset base," said Mr. Davis.
"There are special factors that certainly would make a merger of equals probably the best possible course for those two companies," said Nancy Bush, a bank analyst at Brown Brothers, Harriman & Co. She cited the overlapping geography and similar businesses, particularly in Georgia.
To be sure, such a union could occur only if several hurdles were overcome.
"Wachovia will not pay a premium for Coca-Cola stock" in a merger with SunTrust, said Merrill H. Ross, a bank analyst at Wheat First Butcher Singer Inc.
After that, the banks would have to look at expense synergies and then could move on to revenues, she said. "The banks haven't moved past the first two hurdles to focus on revenues," said Ms. Ross.
One analyst estimated that the companies could conceivably cut 3,000 jobs in the Atlanta region. "Whenever you cut jobs, you cut expenses," this analyst said.
Expense-cutting opportunities are an important part of merger assessments. "The idea is that one plus one will equal three in a merger of equals," said Mr. Tuz. "That only comes about by boosting revenues and becoming more efficient."
A Bank of Boston-CoreStates match, by contrast, did not promise many of the benefits analysts look for in such a merger.
Cultural differences and the lack of business overlap did nothing to inspire analysts' confidence, said Mr. Davis.
In general, cultural issues are "difficult to rationalize," said Nick Adams, a senior vice president at Wellington Management.
What raised the dander of many investors and analysts who contemplated a Bank of Boston-CoreStates merger was the apparently defensive nature of the planned union.
"I don't like to see mergers as methods of avoiding an acquisition of either or both of the companies by a larger company down the road," said Mr. Tuz. "If it is a merger designed to shelter management from a potential acquisition, no one wins except management."
While mergers of equals between other companies might be well received, analysts and investors said the precedent set by the potential Bank of Boston deals could be dangerous for a bank-stock market riding high on takeover speculation.
Investors for their part resent the lack of a premium in mergers of equals. "If you invest in a company that you expect to be acquired, and you don't see a premium, you're a discontented shareholder," said Scott Edgar, a fund manager at Sife Trust Fund.
"If more of these mergers of equals happen, investors might be a little less interested in investing in bank stock," he said. "That would take the wind out of the sales of bank stocks."
Brown Brothers' Ms. Bush said bank executives have no doubt taken note of the response to the Bank of Boston deal talks, which should slow the pace of mergers.
"Now that the trashing of Bank of Boston has happened, you won't see an extended run of mergers of equals," she said. "If any of them were being talked about yesterday, they wouldn't be talked about today."
