Moving to bolster its presence in Chicago, Old Kent Financial Corp., Grand Rapids, Mich., said Wednesday that it would buy First Evergreen Corp., Evergreen Park, Ill., for $488 million in stock.
First Evergreen, which has assets of $1.9 billion and deposits of $1.7 billion, operates eight offices in the Chicago metropolitan area.
Old Kent would double its deposit market share in Chicago to 2% and would improve its rank to No. 7 in the area, up from No. 14. The deal is expected to close in the fourth quarter.
Analysts called the transaction somewhat pricey at 2.5 times First Evergreen's book value and 27 times its last 12 months' earnings. Old Kent's offer equals a deposit premium of 17%.
Old Kent's stock slipped 31.25 cents, to $39.8125.
Executives of the company said that Chicago is an attractive market but that Old Kent would not do risky acquisitions for the sake of size. This deal, they said, fell within Old Kent's standards.
"We'll do accretive acquisitions in a disciplined way in strategically important markets," said David J. Wagner, Old Kent's chairman and chief executive officer.
Mr. Wagner said last week's $30 billion merger agreement between Banc One Corp. and First Chicago NBD Corp. would not affect his strategy. First Chicago has the No. 1 market share position in its headquarters city, but there are also a number of banks battling for very small pieces of what is left, he said.
"Chicago is a huge market that's not as concentrated as a lot of other markets," he said.
The deal for First Evergreen would add to earnings by 1999, Old Kent said. It would cut $12 million, or 30%, of First Evergreen's operating expenses. Old Kent will take a $25 million charge to cover the deal upon completion.
Though it has offered a fairly steep price for a highly capitalized company that is mostly deposits and has only $674,440 in loans, Old Kent can use its high stock price to pay for the deal, said analyst Joseph Roberto of Keefe, Bruyette & Woods Inc.
"I think you'll see a lot of these mid-tier players use their currency to go out and do deals" if they don't get bought themselves, Mr. Roberto said.
