Long Wait Raises Question: Will Advanta Ever Find a Buyer?

Some banking industry observers are increasingly doubtful that Advanta Corp. will be acquired.

Ever since Advanta hired mergers and acquisitions specialist BT Wolfensohn in March, market experts have anticipated a deal between the nation's eighth-largest credit card issuer and a buyer.

Now they're not so sure.

Reports that Advanta was in talks with a number of banks-most notably National Australia Bank-boosted the stock on several occasions and caused spreads on the company's bonds to tighten substantially in the last month.

Indeed, just a month ago rumors were flying that the company had rejected a $42 a share offer from National Australia. But lately the rumor mill has been uncharacteristically quiet.

The altered climate may partly be the result of the modest rebound the company has enjoyed since the onerous first quarter, when it took a $60 million loss provision.

In fact, based on improving fundamentals and strong business lines, bank bond analyst Katharine Rossow of Chase Securities Inc. said the Spring House, Pa., company will remain independent.

Advanta has tightened its underwriting standards, focused on higher- quality customers, and added fees, said Ms. Rossow.

"I doubt Advanta will be sold," she said. "There may be a reorganization or possibly a sale of a division, but I don't think a sale of the company will happen."

Joseph J. Labriola, head of corporate bond research at PaineWebber Inc., argued that the performance of Advanta's bonds suggests that a merger is not a foregone conclusion.

"Advanta's bonds still trade wider than bonds of its peers, but the spreads have steadily tightened going back to April," said Mr. Labriola. "The tightening suggests that the company has more time on its side and may try to make it alone. They may be less inclined to sell-unless they get some substantial premium."

Equity analysts also are increasingly dubious about an imminent merger.

Typically when a company's stock surges on merger rumors, the shares give back all of their gains, industry analysts noted. However, Advanta's shares have traded between $34 and $36 for the past month, a tight range that is atypical of a company believed headed for the altar.

Its stock price has climbed considerably from its low in April. Furman Selz bank analyst Leslie Nelkin said that Advanta's stock is now 50% above its lows but a takeover premium is not in the price.

Mr. Nelkin added: "I don't rule out a merger, but I respect management's decision not to sell the company if they believe the picture of the company will improve in coming months. In other words, I think they want to bargain from strength, not weakness."

Bank stock analyst Mark C. Alpert of Alex. Brown & Sons also pointed out that Advanta's management has never said that they would sell the company. "They said they would explore strategic opportunities, which is a fairly broad statement," he said.

Officials at Advanta Thursday declined to comment specifically on whether the company is for sale.

Still, there are those who believe that Advanta's days of staying independent are numbered.

"This company has always given good guidance (on its performance) well into the future," said industry analyst Elizabeth A. Summers of Ryan Beck & Co., West Orange, N.J. "And yet they are not giving us guidance regarding 1998. My interpretation is that they don't expect to be around in 1998."

But Ms. Summers added that a deal may not come soon. "Advanta has plenty of cash on its balance sheet and strong growth in its lines of businesses," she said. "I don't know what buyers may be offering, but they wouldn't except a fire-sale price."

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