Old Kent Financial Corp. would boost its presence in Chicago with a deal to buy Pinnacle Banc Group of Oak Brook, Ill., for about $243 million in stock.
The deal, scheduled to close in the third quarter, is the second in less than a month announced by Old Kent of Grand Rapids, Mich. The company said in February it would buy $900 million-asset CFSB Bancorp of Lansing, Mich.
Old Kent, which has $16.6 billion of assets, has gradually built its presence in Chicago through acquisitions. With the addition of $1.1 billion-asset Pinnacle, which operates mostly in Chicago's western suburbs, Old Kent would have $5 billion of assets and $4 billion of deposits in the area.
It would move from being the eighth-largest banking company in the Chicago area based on consumer deposits to the fifth-largest, trailing Bank One Corp., ABN Amro Holding's LaSalle National Corp., Bank of Montreal's Harris Bankcorp, and Northern Trust Corp.
"We're continuing to build what we feel is a critical mass in the Chicago marketplace," Old Kent chairman and chief executive officer David J. Wagner said. "You need a significant size.
"Chicago is a very attractive market for a lot of reasons," Mr. Wagner added. "It's a very diverse market for what makes the economy run. You've got a wide variety of industries; you have high average household income. It's in the Midwest, where we have a basic understanding of customer base."
Mr. Wagner said he wouldn't rule out making other deals this year.
"Opportunities don't come evenly," Mr. Wagner said. "If the stars line up, we're anxious to get involved and make a transaction happen, but we're not dependent on that to meet our business plan. These are very comfortable-sized transactions. We'd be inclined to do larger transactions if they met our criteria."
Pinnacle chief executive officer John J. Gleason Jr. said its leaders "assessed what our prospects for our future were and what Old Kent's prospects for the future were." He noted his company's small size in a market dominated by three or four banks.
Though there are hundreds of banks under $1 billion of assets in Chicago, the top four hold nearly half the deposits.
"It's kind of a paradox," Mr. Gleason said. "It's very fragmented but very consolidated at the top. The top four aren't interested in buying $1 billion-asset banks. My concern was, 'When does Pinnacle become irrelevant?'"
Pinnacle was created in 1988 when Mr. Gleason's father, a former chief financial officer of Northern Trust, took his banking company public. The senior Mr. Gleason, who is chairman, built the company by buying $120 million-asset First National Bank of Cicero in 1980. Cicero, a town once dominated by Al Capone, is a largely blue-collar community.
Pinnacle has 13 branches in Chicago and its suburbs and three offices in the Quad Cities of western Illinois. The sites are in a mix of blue-collar and middle-class neighborhoods.
The deal is similar to Old Kent's acquisition last year of $1.9 billion- asset First Evergreen Corp., which gave the company a large presence in the city's south suburbs.
Old Kent said it would take a merger-related charge of $16 million, probably in the third quarter. It expects to cut $9 million, or 30% of Pinnacle's cost base. The deal would add to Old Kent's earnings by 2000.
Pinnacle shareholders are to get 5.4 million shares of Old Kent stock, using an exchange rate of 0.717 for each share of Pinnacle. Pinnacle terminated a stock repurchase program it announced in January.
William R. Katz, an analyst at Merrill Lynch & Co., said he views the deal as conservative and strategic.
"Chicago is very important to them," he said. "I'd expect them to continue to round out the franchise and do it in a rational manner."
