Banc One's agreement with First USA has turned many assumptions about the banking acquisitions and credit card markets on their head.
"For a long time you saw banks spinning off their credit card subsidiaries," said John Duffy, director of corporate finance at Keefe, Bruyette & Woods Inc. "Now you're seeing them trying to get back the customers they lost. Who has that market share? The credit card specialists."
Given its history as an active and astute acquirer - though until recently dormant - Banc One seems the appropriate icebreaker. Analysts see more such deals coming.
"We believe banking firms will continue to look at acquiring companies other than banks," said James Weber of A.G. Edwards in St. Louis.
Edward V. Blanchard, managing director at Merrill Lynch & Co., who advised First USA, said credit card specialists like Advanta and Capital One can expect to start hearing from the few large banks capable of paying their price.
Banc One paid dearly by any banking industry benchmark. Conventional acquisitions raise eyebrows when their prices go much past two times book value; First USA is going for 5.7 times book, or 20 times anticipated 1997 earnings.
Banc One officials said they were willing to sustain a 7.3% dilution for First USA's unique qualities.
William P. Boardman, the Ohio-based banking company's senior executive vice president and acquisitions czar, said the $7 billion deal actually could be considered more economical than December's $527 million agreement to buy Liberty Bancorp of Oklahoma.
Earnings at Liberty are expected to grow 8% annually, while the Wall Street consensus puts First USA's growth at 23%. The ratio of the acquisition's price-earnings multiple to anticipated growth rate is 2.3 for the Liberty deal and only 0.9 for First USA, Mr. Boardman said.
"This deal is truly related to growth," he added. "Yes, this deal is dilutive. But with the growth the Street expects from First USA, our shareholders will start to see the benefits at the beginning of calendar 1998."
James McCormick, president of First Manhattan Consulting Group, called the Banc One-First USA merger a "fairly major step along the continuing road of consolidation of the credit card business."
And Banc One, soon to be No. 3 in credit card receivables, will be interested in buying up the castoffs, chairman and chief executive officer John B. McCoy indicated in an interview Tuesday.
"In 10 years, I don't think there'll be 10 players" in credit cards, he said. "You need economies of scale and economies of skill."
But the veteran bank acquirer otherwise will be busy absorbing First USA for at least a year, Mr. McCoy said. "We're still very interested in bank deals, but given my choice of doing this or a bank deal, I'll take this."
First USA, he added, brings not just expertise in a major business line but also marketing skills transferable to other products. Its "tremendous marketing, technology, and warehousing capability (give) us more ability to cross-sell - it's more than a credit card."
Banc One's logic assumes credit cards will remain healthy and growing. Contrarian analyst Gary Gordon at PaineWebber Inc. contends that delinquency and chargeoff trends are only going to worsen.
"I don't see them losing money," said Mr. Gordon, who follows First USA. "But I think it's going to be hard for them to grow revenues."
