In a move that would double its presence in Connecticut, Bank of Boston Corp. has agreed to buy Society for Savings Bancorp for about $195 million in stock.
The price tag -- equal to about 1.3 times Society's book value -- is fairly high, considering that the $2.8 billion-asset thrift company is still rebounding from loan problems.
But analysis applauded the deal, seeing it as aa show of strength by Bank of Boston, which itself is on the mend from the region's donwturn.
Big Presence in Hartford
They said the acquisition makes sense because Society has a big presence in the Hartford area, where Bank of Boston has 10 branches and is eager to expand.
Bank of Boston president Charles K. Gifford said his company plans to make other acquisitions in the state.
The Society deal would be "modestly dilutive" in the first year, pushing down the company's growth in per-share earnings by 4% to 7%, he said.
That helped drive down shares of Bank of Boston by 6% on Monday. The stock closed at $20.375, off $1.25. Shares of Society, meanwhile, rose $2.625 to $15.125.
Bank of Boston has 40 branches and about $2.4 billion in assets in Connecticut. Society has 19 branches in the Hartford area.
Consumer Finance Arm
The deal would also give Bank of Boston a very profitable consumer finance company called Fidelity Acceptance Corp., which has $440 million in assets and is based in Minneapolis.
The deal, however, carries some risk. Society was an aggressive real estate lender in the 1980s and has been struggling with a large porfolio of bad assets, which now represnt 8.6% of loans plus foreclosed real estate.
But under new chief executive Lawrence Connell, Society has been turning around this year. Mr. Gifford said he is confident that Bank of Boston has properly evaluated Society's assets.
And Mr. Gifford noted that his company has built up plenty of experience at working out problem loans.
The deal calls for Bank of Boston to swap 0.8 share of its stock for each of Society's 11.9 million shares. Based on Monday's closing price, the price would be equal to $16.30 a share, or $194 million.
Lawrence Connell, 55, who joined Society last November, said Bank of Boston's offer represented a better return than the thrift company could provide shareholders.
"I felt the competition [for loans] we'd receive would make it difficult for a bank our size to grow its earnings at the rate it wanted to," he said.
Mr. Connell said it was unclear if he would stay on with Bank of Boston.
The deal is expected to close in the first or second quarter of 1993.
Mr. Gifford said Bank of Boston would take an unspecified charge stemming from the merger. He added that layoffs, and therefore severance charges, were likely to be low for an inmarket acquisition because most of Society's branhes will be kept open.
Analysts said the deal would be welcomed by Society's shareholders. Like other investors in New England banks, they have suffered mightily in the past three years, having seen their share fall from a high of $23 in the third quarter of 1989 to $4.50 in the fourth quarter 1991.
Under Mr. Connell, the company's financial situation improved quickly. He sold branches and other assets, using all of the cash to shore up the company's balance sheet.
For the first six months of 1992, reserves increased to 92% of bad laons from 70%, equity increased to 5.73% of assets from 5%, and nonperforming assets fell to $154 million from $174 million.
The company earned $3.5 million in that period, after posting a $64 million loss for all of last year.