A pair of Michigan banking companies said late Tuesday that they would merge to form the state's fourth-largest bank holding company.
Republic Bancorp of Ann Arbor has agreed to buy D&N Financial Corp. for $286 million of stock, or $30.14 per share of the Troy-based company. The price is 2.47 times D&N's book value and 18.2 times its earnings.
Republic, with $2.1 billion of assets, would gain 53 branches in southeastern Michigan. The merged company would have $4.1 billion of assets, 2,200 employees, 86 retail branches in Michigan, Ohio, and Indiana, and 94 mortgage offices in 21 states.
Among Michigan-based banking companies, only Comerica Inc., Old Kent Financial Corp., and Citizens Banking Corp. would be larger.
The deal, set to close in the second quarter, would make Republic not only a national mortgage lender but also a powerful in-state retail bank. D&N, a former thrift, has been building its commercial portfolio and retail branch network in recent years while Republic was bolstering out-of-state mortgage lending and Small Business Administration-backed lending operations.
"It creates a formidable player in the state," said Michael M. Moran, a senior bank analyst at Roney & Co. in Detroit.
Jerry D. Campbell, chairman and chief executive officer of Republic, said the deal would help his company become one of the state's banking leaders.
"It's an opportunity to leverage our strengths in mortgages and SBA lending with their strengths in commercial and retail banking," he said.
Mr. Campbell would be chairman and CEO of the combined company. George J. Butvilas, president and chief executive officer of D&N, would become vice chairman.
In late trading Wednesday, Republic's stock price was off $1.75 a share, at $14.875, while D&N was up $2.875, to $25.75.
Republic estimated the merger would add 1% to its earnings in 1999, and 4% in 2000. To hit those targets, the company said, it would cut $5 million, or a modest 3%, of the companies' combined expenses.
That Republic needs to cut so little seemed a positive sign to Roney's Mr. Moran.
"They won't have to have a scorched-earth program to make it work," he said. "Usually with mergers you see huge expense targets. Here they almost break even coming out of the gate."
Mr. Moran said he does not believe this deal will signal another round of large community bank mergers. He said he expects the same factors that have kept banks relatively quiet of late-market fluctuations, year-2000 concerns, and anxiety about the global economy-to keep a damper on most would-be buyers.
