Continuing its aggressive expansion in Chicago, ABN Amro Bank said on Tuesday that it has signed an agreement to acquire Cragin Federal Bank for Savings for about $500 million.

ABN Amro will pay $38 in cash for each of Cragin's roughly 13 million outstanding shares.

The price equals about 1.6 times Cragin's book value as of March 31, analysts said.

ABN Amro "has a reputation for buying high-quality merchandise at relatively high prices, and Cragin fits that bill," said Joseph Stieven, director of financial institutions research for Stifel, Nicolaus, & Co., St. Louis.

Stock Skyrockets

Cragin's shares surged on the news. In late trading Tuesday afternoon, they were up $10.25, or 29%, to $35.125.

The proposed acquisition is the latest in a series of Chicago--area purchases by the Dutch bank. The Cragin buyout would be ABN Amro's seventh bank or thrift deal in the area since 1977. Its most recent acquisition took place last year, when it bought Talman Home Federal Savings, now known as LaSalle Talman Bank.

Outside Chicago, ABN Amro owns European American Bancorp in New York and conducts corporate banking activities out of 10 direct U.S. branches of the Dutch bank.

Hitting the Target

The acquisition will boost ABN Amro's U.S. assets to around $40 billion, including $18 billion in the Chicago area. The company has said that $40 billion is its target for the United States.

Cragin, with $2.8 billion of assets, is the second-largest independent savings bank in Illinois. Its 27 branches are situated mainly on Chicago's northwest side and in the western and northwestern suburbs. The staff totals 600.

The acquisition will give ABN Amro 90 branches in the Chicago metropolitan area. That would be second only to the 102-branch network of First Chicago Corp.

Building market share in Chicago, though, is only part of ABN Amro's motivation in seeking to buy Cragin, according to Harrison F. Tempest, chairman and chief executive officer of ABN Amro North America Inc., the Dutch bank's U.S. holding company. Cost reduction is the other major factor, he said.

Saving of 20% Seen

Mr. Tempest estimated that the merger will reduce Cragin's operating expenses by at least 20%.

Kenneth Puglisi, a banking analyst with the Chicago Corp., noted, "It's an in-market merger, and those kinds make the most sense" in terms of cost savings.

ABN Amro said it has reached agreement with several minority shareholders of Cragin on terms of the offer.

It said the acquisition will be funded partly by an offering of preferred shares by its Chicago commercial banking unit, LaSalle National Corp.

The proposed sale of Cragin represents a bonanza for depositors and investors who bought shares of the thrift when it was taken public in June 1991.

"It's been a tremendous investment for anybody who was able to buy it," Mr. Stieven said.

The shares were sold initially at $10 apiece. A subsequent stock split made the per-share value of that sale $6.67, analysts said. Thus, the purchase price represents about 4.6 times the initial investment.

Person to Person

The proposed acquisition culminates several years of talks between Theodore H. Roberts, chairman of LaSalle Talman Bank, and Adam A. Jahns, chairman and chief executive of Cragin.

"Ted and Adam were talking to each other long before we bought Talman, and this is really one of those people-to-people transactions," Mr. Tempest said.

Cragin and Talman will continue to operate separately, he added.

Mr. Tempest said ABN Amro is not planning any more significant U.S. acquisitions "for the time being."

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