KeyCorp, which two years ago completed a controversial merger of equals with Society Corp., is regaining some favor on Wall Street.
No, analysts aren't suddenly raving about the dilutive Society deal; but in the wake of NationsBank Corp.'s announced acquisition of Boatmen's Banchares, takeover rumors are rampant once again. And KeyCorp is appearing on some analysts' lists of potential targets.
These analysts point to an attractive network of banks that stretches across the northern half of the nation. And they argue that KeyCorp's recent weak performance presents acquirers with an opportunity to improve profits.
Bear, Stearns & Co. analyst Lawrence R. Vitale upgraded the Cleveland- based bank on Friday to "neutral" from "unattractive," citing the perception of the company as a takeover target, as well as some recent improvements in its performance.
For two years, Mr. Vitale had rated the $66 billion-asset company "unattractive." But on Friday, he said, "It doesn't make sense to have an 'unattractive'" on the stock since "it is going to be perceived as a target."
If it is bought, he said, KeyCorp could snare 2.5 times book value, a little less than Boatmen's 2.6-times-book takeover price. Last week, KeyCorp stock was trading at 1.9 times book value.
Mr. Vitale said that he is unaware of any overtures to the bank by potential buyers, but he identified First Bank System as a potential suitor.
Thomas K. Brown of Donaldson, Lufkin & Jenrette, who has had a "strong buy" on KeyCorp since last September, said that the bank's chances of being acquired depend on its ability to improve performance.
"If they are successful with their plan, they will not be bought," said Mr. Brown. "If they are not, they will be."
During an investor meeting on Friday, Mr. Brown was bullish about the company's ability to regain strength. Several years ago, "the company's earnings were flat, disappointing, and unexciting, but now they are ready to ramp up," he said.
Better marketing, a management that "gets it" about the need for technological improvement, and a new plan to further improve productivity will restore the company's earnings and renew investor confidence, Mr. Brown argued.
Analyst Henry C. Dickson, who has a "hold" rating on the bank, also is optimistic about its future. He said he doesn't think KeyCorp is "right on the hot seat" as a takeover target.
Analyst Nancy A. Bush of Brown Brothers Harriman & Co. agreed. In a recent report on KeyCorp, entitled "There's no Sale Out Front," she said that the speculation was fueled primarily by rumors of a hostile takeover by First Bank System.
KeyCorp is adamant about remaining independent, she said.
"The company is well on its way to developing line of business reporting and is emphasizing the development of an 'expense culture' - something not before seen at this company," said Ms. Bush. "Management here is also acutely aware of the Street's perception that revenue growth has been a long time in coming, and that nonbelievers in this story still are many."
