Tennessee looks like the next hot spot for merger activity, analysts said.
Union Planters Corp.'s aggreement to buy Capital Bancorp in Miami, announced on Wednesday, doesn't mean the Memphis-based bank won't be acquired by a bigger fish.
Indeed, Thomas H. Hanley, a veteran banking analyst at UBS Securities, called the deal a "prettying-up process."
The Capital deal will make Union Planters "even more attractive to a potential acquirer," he said.
Mr. Hanley said Union Planters could go for $77 a share. First Union Corp., which has a minor presence in Tennessee, has long been a rumored suitor.
But others doing business in the state, including NationsBank Corp. and SunTrust Banks Inc., could be hunting for market share.
Union Planters' stock closed down 37.5 cents, at $50.06.
And there are even more attractive candidates, said Mr. Hanley. First American Corp., the dominant bank in Nashville and No. 2 bank in the state, may be the first to fall, he said. "We have the stock being bought out at $53." First American gained 25 cents to $40.06 on Wednesday.
Smith Barney regional bank analyst Jacqueline Reeves said Tennessee, with a few top players and an attractive market, resembles Virginia's banking environment before the recent outbreak of consolidation there.
She noted Tennessee's rapid population and income growth and its attractive consumer demographics. Centrally located, Tennessee is a magnet for high-wage transportation companies like Federal Express Corp., she said.
Ms. Reeves said shares of First Tennessee National Corp., the top player in the state, are a good buy on fundamentals and the company could be a takeover candidate. The stock ended the day unchanged at $51.25.
Mr. Hanley, however, said First Tennessee is "not a seller at this point." He said the company's new chairman, Ralph Horn, is committed to remaining independent.
Meanwhile, investors got economic news that calmed the fears of rising interest rates.
Producer prices fell for the seventh consecutive month, surprising economists, who were expecting a 0.01% gain. Retail sales rose 0.6% in July, but that was less than the predicted 0.7%.
Bonds rallied, with the yield on the benchmark 30-year Treasury bond falling 4 basis points to 6.63%. The news provided minimal support for the equities markets on Wednesday, though banks fared better than other sectors.
The Standard & Poor's bank index gained 0.28% to 576.09, while the S&P 500 fell 0.49% to 922.02 and the Dow Jones industrial average, which seesawed throughout the day, dropped 32.52 points to 7,928.32.
