Sovereign Bancorp of Wyomissing, Pa., said Monday that it would pay $318 million for 95 branches and $2.3 billion of deposits owned by CoreStates Financial Corp.
The agreement is for nearly double the deposit divestitures required by regulators for the completion of First Union Corp.'s deal to buy Philadelphia-based CoreStates, a transaction scheduled to close Thursday.
Sovereign's offering price amounts to a sizable 14% premium, ana-lysts said.
Along with the Pennsylvania and New Jersey-based deposits and branches, Sovereign would pick up $800 million in commercial and consumer loans, a wholesale dealer services unit with about $45 million in outstandings, and a trust banking operation with about $300 million in managed assets.
Charlotte, N.C.-based First Union would gain about $150 million on the deal after taxes, analysts said.
George Biechler, a CoreStates spokesman, said the branch sale was the result of balancing the First Union-CoreStates business strategy with the needs of many small communities on the fringe of the combined franchise.
"Sometimes you're able to consolidate two offices into one and serve customers from a central location, but with many of these locations it was not feasible because of the scattered nature of these branches. With Sovereign, we have a buyer who can continue to provide jobs and meet the financial needs of the customers and the communities," Mr. Biechler said.
About 1,000 employees work in the CoreStates branches. Sovereign has said it will offer jobs to all active employees.
Fears of market dominance by a merged First Union-CoreStates led the U.S. Department of Justice and the Pennsylvania Attorney General's office to require the sale of about $1.2 billion of deposits and about $380 million in commercial, small-business, and consumer loans. The order specifically called for the sale of 23 branches in Philadelphia and nine outside of the city.
Most of the additional 63 branches included in the deal are in small communities throughout northern and central Pennsylvania. Another 12 are in New Jersey, and two are in Berks County, Pa.
From Sovereign's perspective, the deal is sweet indeed. It marks the largest commercial bank acquisition in the $18.1 billion-asset company's history and would give it a significant market share boost in Philadelphia.
Sovereign chief development officer Mark R. McCollom said that though the northern and central branch locations are considered attractive, the Philadelphia operations and the various business units are what made the deal so appealing.
"It's important to Sovereign to have that mass and scale as the big dogs in the neighborhood get bigger," said Anthony Davis, an analyst with Dillon Read Inc.
Sovereign has 45 offices in the five-county Philadelphia area. The deal, slated to close in August, would add another 23 offices and $900 million of deposits.
The company will establish a "significant commercial lending presence in the Philadelphia market, including an asset-based lending unit as soon as practical," said Jay S. Sidhu, Sovereign's chief executive officer.
