Bank of New York Co. withdrew its $24 billion unsolicited bid for Mellon Bank Corp. on Wednesday-and fired a parting verbal shot.
Accusing the Pittsburgh-based company of "intransigence," Bank of New York chairman and chief executive officer Thomas A. Renyi said he was "particularly dismayed at Mellon's dismissive and superficial treatment of this transaction.
"At no time have they put forward a credible alternative strategy that will give their shareholders at least the same value embedded in our proposal."
Mellon chairman Frank V. Cahouet, who had repeatedly said his company was not for sale, returned fire in a sharply worded letter to Mr. Renyi.
"Key among the reasons for rejection of the proposal is the Mellon board's lack of confidence in you as a leader of such a complex company," Mr. Cahouet wrote. "The board will not allow itself to be used by you as a forum for your ill-conceived campaign to pressure it into making a decision that would violate its judgment and responsibility," the letter continued.
Shares in Mellon dropped $2 on Wednesday to close at $68, while Bank of New York shares rose $1.50 to close at $61.50. (See related article on back page.)
The harsh exchange typified the escalating acrimony between the holding companies since Bank of New York went public with its unsolicited offer April 22. Mr. Renyi framed it as a friendly approach and promised not to go against the wishes of Mellon's board. Even as Mr. Renyi campaigned for institutional shareholders' support, Mr. Cahouet stood firm, and Mr. Renyi never got the audience he sought with Mellon's directors.
Saying that the investors responsible for 30% of Mellon shares were "overwhelmingly supportive," Mr. Renyi in a May 14 letter made a final request for time at the Mellon board's regularly scheduled monthly meeting on Tuesday.
The directors agreed unanimously not to meet with Bank of New York, because they regarded a merger as "detrimental," Mr. Cahouet said in his letter.
Bank of New York's proposed cost cuts would create "substantial execution risks," Mr. Cahouet said.
The New York company had said the deal would bring estimated annual cost savings of $700 million and result in the elimination of 6,000 to 7,000 jobs.
Analysts and investment bankers said Bank of New York, though losing this battle, seems at last to have succeeded in setting a minimum price for which Mellon would sell if it decided to do so.
An investment banker, who declined to be quoted by name, said the strategy all along was to put Mellon in "a box."
Few other suitors could match Bank of New York's price, investment bankers said, and shareholders would be inclined to compare any future bids with this benchmark.
Analysts also said Mellon will now have to work diligently to prove to shareholders that its independent course is the right one.
"The $64,000 question for Mellon is whether their business mix and product set is sufficiently different and unique enough to insulate the bank against the increasing demands for economies of scale in the industry," said Anthony Davis, an analyst at SBC Warburg Dillon Read.
He said that he expects Mellon to continue to make smaller acquisitions, but that the long-term strategy is still in question.
"At some point down the road somebody with deep pockets is going to step in and buy them," Mr. Davis said.
Meanwhile, Bank of New York plans to resume its stock buyback program, suspended while it went after Mellon.
Analysts said the New York company's prospects of landing a big deal have narrowed. It has bought corporate trust and custody portfolios in the last few years, but this month it lost the bidding for the global custody business of Morgan Stanley Dean Witter & Co., which went to Chase Manhattan Corp. for a reported $600 million.
In April, Bank of New York withdrew a bid to buy up to 9.9% of rival State Street Corp. Many considered that a precursor to a takeover of the Boston-based banking company.
Some analysts said Bank of New York may wait for Northern Trust Corp. of Chicago or another trust-intensive company to put itself up for sale. Traditional retail banks would probably not fit with Bank of New York's stated strategy of building its securities processing and other fee- generating businesses.
"I think they will continue to consider their strategic options," said Bradley Ball, an analyst at Credit Suisse First Boston. "But it certainly narrows the focus of their potential acquisitions."
Bank of New York did not rule out future talks with Mellon.
The two companies were close to a deal in December. Negotiations broke down after Bank of New York refused to guarantee that one of Mr. Cahouet's top lieutenants would succeed Mr. Renyi as the combined company's eventual chairman, according to people familiar with the talks.
On Wednesday, Mr. Renyi said, "We remain available to engage in productive discussions at any time."
