The Department of Justice approved the divestiture plan Thursday for Fleet Financial Group's acquisition of BankBoston Corp., removing one of the biggest potential obstacles to the $16 billion deal.
In what is described as the largest divestiture ever ordered, the Boston-based banking companies are to give up 306 branches in four states, along with $13.2 billion of deposits.
The buyers were not announced. Fleet said in a statement that "we are now moving to finalize our contracts with the purchasers. We expect to make an announcement on the purchasers over the next week or two."
According to sources, Sovereign Bancorp of Wyomissing, Pa., will get 278 branches and $12.4 billion of deposits. A group of Massachusetts community banks won the remaining 28 branches and $810 million in deposits.
"We are quite happy to have received Department of Justice approval, which resolves antitrust concerns," said a spokesman for $73.5 billion-asset BankBoston. "It is a giant step toward the eventual consummation of the Fleet-BankBoston merger."
Having completed its evaluation, the Justice Department's antitrust division would not challenge the merger on condition that the divestitures are made. In its statement, Fleet said the plan "assures ongoing competition and choices for consumers and businesses in the New England market."
The Federal Reserve Board still has to approve the proposed buyers. The Fed is scheduled to vote Tuesday on $104 billion-asset Fleet's application to buy BankBoston.
The merger, announced in March, would create a $180 billion-asset bank with 20 million customers and more than 5,700 branches. The companies planned to complete the transaction early in the fourth quarter.
The divestiture process has been closely followed by bankers, regulators, and community groups. The Justice Department was said to have wanted to create a sizable competitor in the region, and apparently will accomplish that with the reported involvement of Sovereign Bancorp. Community bankers and local legislators, meanwhile, were pushing for a plan that would benefit smaller New England banks.
Community groups have raised concerns that the merger would eliminate competition in New England because it would combine the two biggest banks there. The next-biggest banking company in the region is $19.8 billion-asset Citizens Financial Group, a Providence, R.I., subsidiary of Royal Bank of Scotland.
The Justice Department acknowledged the high-profile nature of the divestiture plan, saying that it exceeds the previous record of $8.5 billion divestiture that was a condition of the 1992 merger of BankAmerica Corp. and Security Pacific Corp., both of California.
The Justice Department said the sale of the bulk of the divested assets to one institution would "establish the primary buyer as the leading small-business lender in Boston and other New England towns, and as a major middle-market lender in New England."
At $25 billion-asset Sovereign, president and chief executive officer Jay Sidhu refused to discuss the transaction, saying he does not comment on rumors.
Investment banking sources said that from dozens of bids Fleet received, finalists included Sovereign; HSBC USA Inc., a Buffalo-based subsidiary of HSBC Holdings in London; Charter One Financial Inc. of Cleveland, and Comerica Inc. of Detroit. A consortium of Massachusetts community banks was also negotiating with Fleet.
Some analysts have said Sovereign may have a hard time financing a deal of this magnitude. Fleet has estimated the purchase price at between $1 billion and $1.5 billion. Sovereign's assets would increase by about half and its geographical reach would overnight go well beyond its current Pennsylvania-New Jersey market.
Most of the divestitures would be in Massachusetts, where Fleet is essentially selling its entire retail business. The primary buyer would get 204 offices there, with $8.6 billion of deposits. There would also be 13 branches and $543.5 million in New Hampshire, 50 branches and $2.3 billion in Rhode Island, and 39 branches with $1.8 billion in Connecticut.
Fleet agreed not to block other banks from buying or leasing branches it may close after the merger.
