As CoreStates Financial Corp.'s directors were readying for a board meeting to take place today, observers said the company is almost certain to consider sale.
Mellon Bank Corp., which made an offer that was rebuffed by CoreStates' directors last month, has a "commanding advantage" in acquiring the company, said one analyst.
But the company's biggest shareholder said it isn't convinced Mellon is the only choice for a deal. It wants Philadelphia-based Core-States to keep its options open.
"Our issue is not per se Mellon," said James F. Rothenberg, president of Capital Research and Management Co. of Los Angeles. "Our position is the directors know this is the possible outlook."
Capital Research, a mutual fund company, owns 9% of CoreStates stock. Mr. Rothenberg sent a letter to CoreStates' directors last week expressing his concern about the company's future earnings. In an interview Monday, Mr. Rothenberg said, "This is an industry that has seen lots of consolidation, and you have to figure out how to be unique," he said. "That's CoreStates' challenge."
Mr. Rothenberg said he is "hopeful" but not confident that the directors will act in the best interest of the shareholders. "If I was confident, I wouldn't have written the letter," he said.
CoreStates' directors did not return phone calls.
Analysts believe that with pressure from shareholders, CoreStates will have to consider a sale. The question is, who could afford to buy the $47 billion-asset company?
Anthony Davis, an analyst with SBC Warburg Dillon Read & Co., said Mellon, based in Pittsburgh, still has the best shot at acquiring CoreStates. Mr. Davis said a 20% expense reduction at a combined Mellon- CoreStates could add to earnings in the first year. The cost cutting would largely be done in Philadelphia, where Mellon would command 30% of the banking market.
The problem with a big bank merger, said analyst George Bicher of BT Alex. Brown, is that Mellon would reverse a trend of investing in nonbanking companies. Mellon's stock has traded at higher premiums because it increased its fee-based businesses, including asset management and institutional trust. Buying CoreStates, he said, would make Mellon look more like a traditional bank.
"I'm not so sure it is good for Mellon in the long term," Mr. Bicher said. "It would increase its exposure to regional bank earnings, and they had done a good job of getting away from that."
In its third-quarter earnings release last week, Mellon said 63% of its revenues came from fees very high for a regional bank.
Claire Percarpio, an analyst with Janney Montgomery Scott in Philadelphia, said CoreStates' directors "clearly are going to have to revisit all their options."
She said she believes the company could be sold. But Ms. Percarpio isn't so sure Mellon would be the acquirer.
"If you look at what needs improvement at CoreStates, it's the regional bank," she said. "I don't think Mellon is any better in the areas where CoreStates is weak," she added.
