Wall Street analysts are saying that if Amsouth Bancorp. is unable to turn First American Corp. around in 12 to 18 months, it too could become a prime takeover candidate.

Failure to correct First American's ills "certainly puts the combined entity in play," said Peyton Green of Sterne, Agee & Leach, Birmingham, Ala. "They could become the target as well."

Michael L. Mayo of New York's Credit Suisse First Boston, agrees. "If they fail in their effort, certainly (its going on the block) is a possibility," he said. But Mr. Mayo added that it was too early to predict what will happen. He said it was unfair to assume that Amsouth would fall short.

Like Mr. Mayo, Mr. Green said it was too early to tell whether Amsouth was in danger of getting gobbled up itself. "I think there is ample time" for Amsouth to remedy First American's ailments, Mr. Green said.

Meanwhile, First American showed some signs of life, reporting first- quarter earnings of 63 cents a share, against a consensus First Call estimate of 61 cents.

Birmingham-based Amsouth announced on June 1 it would acquire First American, Nashville, in a stock swap. First American's shareholders are to receive 1.871 shares of Amsouth common stock for each of their shares. The deal is supposed to close in the fourth quarter.

Based on Amsouth's closing stock price on the business day before the announcement, the transaction was valued at about $6.3 billion, or $53.09 per First American share. That's equal to about $28.375 per Amsouth share. However, investors have reacted negatively toward the deal and Amsouth's shares have weakened, selling recently at about $22 and cutting the deal value by about 21%.

The deal would double Amsouth's size to $40 billion of assets. Many analysts have high praise for Amsouth's management for generating excellent growth and earnings. Yet they are unsure whether Amsouth will achieve a smooth merger.

For one thing, they say its management may be somewhat rusty when it comes to mergers and acquisitions. The company has not bought anything of significance since early 1994, when it paid $287.5 million for Fortune Financial, a Clearwater, Fla., thrift.

"Can they handle the risks that they didn't have over the past five years?" Mr. Mayo asks. "The bar has been raised. It's like a high jumper who cleared six feet who is going to have to jump eight feet."

Another nagging doubt among some analysts is whether Amsouth can correct the difficult problems First American is suffering at its Deposit Guaranty Corp. subsidiary. Deposit Guaranty has been giving First American fits since it acquired the Jackson, Miss., banking company last year.

"They basically have to put together three companies," said Joseph Roberto of Keefe Bruyette & Woods, New York. This tangle, at least in the short term, is making Amsouth unattractive to any suitor, a disappointment to investors who had hoped the company would be acquired at a high premium because of its excellent track record.

"Whoever would buy Amsouth?" asked Mr. Roberto. "They have to put it all together to see what's what." Some analysts believe that by doubling its size, Amsouth is discouraging acquisition offers from other institutions. "Clearly, the bank's announcement ... would indicate that management seeks to remain independent for the time being," Rosalind Looby of New York's Morgan Stanley Dean Witter wrote in a recent report on the proposed deal.

Top executives of Amsouth and First American were not available for comment, but an Amsouth spokesman played down the company's inexperience in acquisitions, saying it had recruited executives from other banks that have been active in the field.

Both companies attributed their reticence to the quiet period mandated by the Securities and Exchange Commission regulations, which prohibit them from making comments that may bolster Amsouth's stock price.

If down the road Amsouth does become a takeover target because it could not contain First American's troubles at Deposit Guaranty, the scenario would be a replay of what the Nashville banking company is undergoing. Mr. Mayo said that First American had put itself up for sale.

The situation at Amsouth mirrors a significant event in the earlier career of First American's chief executive, Dennis C. Bottorff.

In 1991, while he was chief operating officer of Norfolk, Va.-based Sovran Financial Corp., his banking company merged with Atlanta-based Citizens and Southern Corp. to form C&S/Sovran Corp. in what was billed as a marriage of equals. Mr. Bottorff was named heir to the chief executive, the late Bennett A. Brown, who had been head of C&S.

But that transition never took place because in late 1991 Mr. Brown was forced to seek a merger with Charlotte, N.C.-based NCNB Corp., a predecessor company of Nationsbank and Bank of America. Mr. Brown was pushed into action when the former Sovran Financial's real estate portfolio in Washington began hemorrhaging.

Mr. Bottorff moved to First American in late 1991 and subsequently became its chief executive. Some analysts think that Amsouth will succeed in conquering First American's problems because of the Birmingham company's impressive track record.

"They have a management team that set aggressive financial goals and met and exceeded them in the past several years," said Kenneth M. Hemauer of Robert W. Baird & Co., Milwaukee. At least one analyst says the turnaround is already under way.

"They're turning the place around," said Lori Appelbaum of Goldman Sachs, New York. "Amsouth is experiencing positive results." Even if this is so, the investment community is as skeptical and as wary as it was when the acquisition was announced as evidenced by the company's continued depressed stock price.

"People are approaching this as a 'show me' situation," said Mr. Hemauer.

"Due to the Deposit Guaranty acquisition, people are asking, 'Is Amsouth buying a depleting asset?'" Last March, First American stunned investors by announcing that first-quarter earnings would be below the analyst consensus because of its inability to digest Deposit Guaranty systems effectively, a condition that led to significant customer defections. "We were somewhat surprised at the degree of the integration problems," said Mr. Mayo of Credit Suisse First Boston.

"It's not going to be a sure turnaround immediately," said Michael L. Granger of Fox-Pitt Kelton, New York. However, for the long term Mr. Granger is upbeat on Amsouth. "The negative momentum has stopped," he said. "I don't think they're back-pedaling anymore. Now it's a case of going forward." Mr. Granger, in fact, is recommending the stock while most other analysts are neutral, according to a survey by First Call. "If we're wrong, given the price of the stock, the downside risk is pretty limited," he said.

What is needed most to rehabilitate Amsouth's reputation among investors is a solid performance by First American, several analysts said. "The market wants to see results," said Mr. Green of Sterne Agee.

Mr. Mayo said investors want to see several quarters of solid achievement on the part of First American. "It's a matter of moving up to the next level with sustainable growth," he said.

Mr. Roberto suggests that in about 12 months, it should be apparent whether Amsouth will be a survivor that will have the financial heft to make other significant acquisitions or be a takeover candidate itself, Mr. Roberto said.

"Clearly, Amsouth has got to get their arms around the First American situation or they themselves could become vulnerable a la First American," he said.

On the other hand, he added, if Amsouth is successful, with its size the company could become a significant acquirer of other banks. "That could very well be," Mr. Roberto said.

Mr. Heffernan is a writer based in Atlanta.

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