NationsBank Corp. shares dropped sharply Tuesday on news of its acquisition of Bank South Corp. at 2.5 times book value, but Wall Street bank analysts said they doubted the lofty price would establish a new threshold for merger prices.
"I don't think we'll be seeing many deals with prices as high as this one. The standard will probably still be around twice book value," said Frank W. Anderson of Stephens Inc., Little Rock.
But he said this deal probably ensures that "there isn't a seller out there who will accept less than twice book," with the obvious implications for stock prices.
Shares of NationsBank slipped $1 to $60.50 Tuesday after the North Carolina-based superregional announced it would pay $1.6 billion for the Atlanta bank.
Bank South, whose shares rose tktk to tktk, has long been rumored to be an acquisition target. The takeover premium in its stock expanded this summer amid announcements of numerous other deals.
Highlighting how far some bank stocks have traveled since the industry's low point five years ago, the $27 per share price that Bank South's stockholders will receive is more than five times the stock's nadir of $5 in January 1991.
"This kind of price could only be paid as part of an in-market deal," said Mr. Anderson. Because it already operates in Atlanta, NationsBank believes it can cut $170 million of costs in the deal.
"Such a price can only be justified if there is a massive cost takeout available or a stunning revenue opportunity," said Nancy A. Bush of Brown Brothers Harriman & Co.
But Ms. Bush, a critic of several deals this summer, said she is generally satisfied with the case made by NationsBank. So is Mr. Anderson, he said.
The deal enhances NationsBank's already significant share of the growing Atlanta market and prevents an outside competitor like BankAmerica Corp. or Banc One Corp. from entering that arena with a purchase of BankSouth.
The deal may effectively thwart a combination of other big players in the market, notably Wachovia Corp. and SunTrust Banks, on antitrust grounds.
