Star Banc Corp. pulled off a rarity in agreeing to buy a company that, according to the last quarterly reports, exceeds its asset size by almost 50%.
The target, Firstar Corp., also had a larger market capitalization-$5.7 billion versus $5 billion.
It was a testament to the power of a top performer with a superior stock valuation enhanced by the bull market. Analysts and investment bankers said this could be the first major banking deal in which a smaller company buys out a larger one.
Few others could do the same. Analysts said Fifth Third Bancorp, Star Banc's hometown rival in Cincinnati, may be the only one similarly capable.
Firstar chairman and chief executive officer Roger L. Fitzsimonds said the size difference was "not a consideration at all" because "we really consider this to be a merger of equals."
But the defining characteristics of a merger of equals are missing, thereby underscoring Star's considerable feat.
The Cincinnati-based company paid a whopping 44% premium over market price for Firstar. Star Banc chairman, president, and CEO Jerry A. Grundhofer would run the combined bank. Eighteen of the new board's 32 members would come from Star.
Star Banc's stock, enthusiastically favored by analysts, has risen in price to where it trades at more than 23 times next year's projected earnings-nearly twice the level of most money-center banks and better than virtually every regional bank.
Star's strengths were so persuasive to Firstar's directors and management that they agreed to hand over control of the post-merger board and most top management positions to a smaller company. Mr. Fitzsimonds is to be chairman, Mr. Grundhofer CEO.
Most observers do not see this as a trend in the making, though Fifth Third has similar characteristics.
Fifth Third had $22.9 billion of assets and a $13.2 billion market capitalization on March 31.
It is in the asset range of regional peers such as Regions Financial Corp. of Alabama and Marshall & Ilsley Corp. in Wisconsin. But its market value is just behind that of BankBoston Corp. and just ahead of Bankers Trust Corp., New York, and Comerica Inc., Detroit.
Fifth Third's price-earnings multiple is unmatched in banking. It trades at 30.8 times next year's estimated earnings.
No other banking company has the same combination of relatively modest assets with an ultra-high market valuation, said A.G. Edwards & Sons Inc. bank analyst Timothy Willi. "No one else is even close," he said.
The market's love affair with Star and Fifth Third could have serious consequences in the Midwest and anywhere else these banks might choose to set their acquisition sights.
Because most every merger these days is financed with stock, Star Banc and Fifth Third possess the most valuable currency in the consolidation game.
In the history of high-profile mergers, its appears that only once has a banking company attempted to assert its currency value in going after larger quarry. That was how First Bank System Inc. of Minneapolis tried to buy First Interstate Bancorp of Los Angeles in 1996, but ultimately First Interstate succumbed to Wells Fargo & Co.'s hostile approach. First Bank, now called U.S. Bancorp, continues to enjoy a high market valuation.
Bank of New York Co. and Mellon Bank Corp. are others with high multiples that give them power to do acquisitions. But Mellon of late was occupied with fending off unfriendly bids from Bank of New York rather than using its paper to finance another merger.
If there is another bank in the nation that packs relatively the same punch as Star Banc or Fifth Third, Mr. Willi said it is Park National Corp. of Newark, Ohio.
The 57-branch banking company has $2.3 billion of assets and a stock multiple of 22 times next year's earnings, unusually strong for a bank that size and translating into an impressive market value of $945 million.
