Amsouth Stock Hits The Comeback Trail, Still Has Detractors

Amsouth Bancorp.'s shares have surged in the last week, indicating that investor skepticism about its planned merger with First American Corp. is receding.

Yet some naysayers remain.

Shares of Birmingham, Ala.-based Amsouth have gained 6.3% from a six- month low of $21.875, set June 15, and closed at $23.25 Wednesday.

When Amsouth announced its deal for Nashville-based First American, many investors feared Amsouth had taken on too much. In fact, the stock plunged on the June 1 deal announcement. This would be the first sizable deal Amsouth had done in five years, analysts said.

Investors also were concerned about the quality of First American, which had disappointed Wall Street several times as it struggled to integrate its acquisition of Deposit Guaranty Corp., a Jackson, Miss., banking company.

"Those concerns are justified," said Sean J. Ryan, a bank analyst at Bear, Stearns & Co. "But investors know that Amsouth has superior operations, can execute better than most managements, and can create value better than most bank managements."

However, he said investors have been overreacting to the challenges.

"The market's initial reaction to this deal was really perverse," Mr. Ryan said.

"For the longest time it let the biggest, dumbest suitors get away with dilutive deals. And now that well-run banks are making accretive deals, it is killing their stock."

Analysts attributed at least some of the gain to value investors who have been snapping up the stock because they perceive its valuation to be too low.

"The stock was clearly oversold," said one trader who bought Amsouth for value investors in the past week. "The stock had gotten too low to ignore," he said.

Investors also have had time to reflect on Amsouth's stellar track record, said Christopher T. Kelly, a bank analyst with Morgan Keegan & Co.

"Some are saying yes, I believe that they can make this deal work."

Frank Suozzo, a buyside analyst with Alliance Capital Management LP, which has a stake in First American, said that he's holding his position in First American in spite of the market skepticism that continues to drag on the stock.

"I believe Amsouth can execute because they have a better franchise," Mr. Suozzo said. "And as they deliver the numbers, the share price will rebound."

But some market experts are dubious about the gains in Amsouth's stock.

"It will take a while for the stock to rebound," said Scott Edgar, director of research at Sife Trust Fund, which own 975,000 of Amsouth shares and 250,000 shares of First American. "We're not buying and we're not selling; we're taking a wait-and-see approach."

Investors continue to worry about this merger, said Frank Barkocy, senior analyst at Keefe Managers, which shorted the stock on the announcement and later sold all its shares.

"Investors were counting on Amsouth buying back shares, but now that's stopped because of this acquisition," Mr. Barkocy said. "Amsouth was also considered a takeover target, and it has lost some of that luster because of this acquisition."

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