2 Midwest Mergers Show Activity Remaining Strong

Two midwestern regional banks made strategic acquisitions in their home states Monday, signaling continued interest in bank mergers despite stock market volatility.

Milwaukee-based Marshall & Ilsley Corp. said it had agreed to buy $1.1 billion-asset Advantage Bancorp of Kenosha, Wis., for $219 million of stock.

Akron, Ohio-based FirstMerit Corp. announced it would buy $602 million- asset Cobancorp of Elyria, Ohio, for about $157 million of cash and stock.

"I would have been expecting a slowdown, given the downturn" in the market, said Joseph Roberto, an analyst at Keefe, Bruyette & Woods Inc. "But that doesn't take away the need for consolidation."

Marshall & Ilsley's deal would solidify its position as the top banking company in Wisconsin. The $19 billion-asset company closed a deal Oct. 1 to acquire Milwaukee-based Security Capital Corp. for $1 billion. With the acquisition of Advantage, Marshall & Ilsley would get the No. 1 market share in Kenosha. After the deal closes, it would have 249 Wisconsin branches and $12.4 billion of deposits, nearly 19% of the state's total.

With the Security deal, Marshall & Ilsley became either No. 1 or No. 2 in deposit market share in every major metropolitan area in Wisconsin except Kenosha-Racine, the fifth-biggest market in the Badger State.

The buyout of Advantage, scheduled for a first-quarter closing, would not dilute earnings, Marshall & Ilsley said, largely because of cost savings of 18%.

The deal's price was not unreasonable, analysts said. At 2.3 times book value and 21 times estimated earnings, it is priced about the same or slightly less than similar-sized deals, Marshall & Ilsley said. "These guys don't do dumb deals," Mr. Roberto said. "They have a pretty good track record."

Advantage is a savings and loan, although it was repositioning itself to look more like a bank and had a growing number of small commercial loans, analysts said.

The acquisition would also be a small milestone for Marshall & Ilsley, giving it $300 million of assets and five bank branches in the southwest and northwest suburbs of Chicago. Although Marshall & Ilsley has a bank in Phoenix, that operation is largely a trust and private bank.

The sale made sense for Advantage, analysts said, because Paul Gergen, the thrift's 64-year-old chief executive, was facing retirement, and consolidation has picked up in Wisconsin this year.

For FirstMerit, which has $5.2 billion of assets, the acquisition of Cobancorp, a commercial bank, would expand its presence in Lorain County, Ohio, west of Cleveland. The area is fast-growing, company officials said. Cobancorp also has a few branches in Columbus that are primarily commercial lending offices.

The price is 2.8 times Cobancorp's book value. Cost savings are estimated at $14.2 million pretax, a 50% saving of noninterest expense, including branch closings. FirstMerit will take an $18 million to $19 million pretax restructuring charge. The deal, which is scheduled to close in the second quarter, would be paid for with up to 70% stock and the balance in cash. In connection with the deal, FirstMerit said it would repurchase 4.3 million shares of its stock for use in the acquisition.

The deal would be FirstMerit's first major bank acquisition since 1995. It doesn't significantly affect deposit market share in the state, the company said.

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