The huge price Barnett Banks Inc. fetched from NationsBank Corp. could unleash a flurry of selling as banks decide that now is the moment to cash out.
But Barnett was one the nation's trophy franchises. The kind of price it got will likely only be matched by a few select banks that dominate their markets the way Barnett bestrides Florida, said investment bankers and attorneys who advise on mergers.
Indeed, the number of such banks nationwide can be counted on one hand, they said.
The elite circle of companies that could trigger the kind of bidding frenzy that led to Barnett's huge takeout price include SunTrust Banks Inc., CoreStates Financial Corp., and Fleet Financial Group Inc.
These banking companies are desirable because they have significant market share in attractive markets, said Goldman, Sachs & Co. partner Milton Berlinski, who advised NationsBank in its acquisition of Barnett.
CoreStates and Fleet have long been seen as takeover targets because of the difficulties they've both had digesting big mergers.
Veteran bank merger advisers say Barnett read the market perfectly when it decided to put itself up for bid.
"So much of these things is timing," said Robert E. Bostrom, partner in Winston & Strawn, the law firm. "You've got to have it so would-be buyers aren't too busy digesting their own deals, and Barnett had it just right."
The bidding for Barnett began two weeks before the deal was announced.
Wachovia Corp., SunTrust Banks Inc., Banc One Corp., and First Union Corp. all made bids before NationsBank topped them all with an offer of $75 per share, or 4.1 times book value, and a 37% premium over market price.
"We were at $70, and we weren't even that close," a person close to SunTrust said in disbelief.
Advisers on deals see no slowing in the upward spiral of prices for banks. They say that top bankers are so confident these days in their ability to cut costs and hit earnings targets after mergers that they are willing to disregard the conventional wisdom that no franchise is worth more than three times its book value, or net worth.
Instead, they say, bankers focus now on earnings. For example, NationsBank is paying 23 times estimated earnings for Barnett. Banc One paid 20 times earnings for First USA Inc.
"There's a newfound aggressiveness, a new mentality among acquirers," said Barry P. Taff, partner at Silver, Freedman & Taff. "Whatever limitations banks felt from Wall Street on how much they could pay are pretty much gone now. The feeling is: 'I call the shots now.'"
For this reason, some think that expansion-minded superregional companies like Banc One and First Union, which lost out in the bidding for Barnett, may be willing to pay a high earnings multiple for another southern banking company, perhaps Wachovia or SunTrust, although those companies may not get quite what Barnett did because they don't dominate their markets as Barnett does.
SunTrust is considered by many to be the most valuable southern franchise now that Barnett is gone. Because it is based in the attractive Atlanta market, has 10% of all deposits in Florida, and has entered markets in Tennessee, it might command a price approaching Barnett's if it should decide to put itself up for bid.
Some analysts think now would be a good time for SunTrust and Wachovia to merge. Such a deal has been speculated about openly for years around Wall Street.
Richard X. Bove, Raymond James & Associates' banking industry analyst, upgraded the shares of both stocks to "buy" last week in anticipation of such a deal.
"SunTrust is decentralized. They have banking groups all over their market area" run by high-level executives, he said. "Wachovia, on the other hand, is highly centralized, with a greater reliance on technology and systems than SunTrust."
Mr. Bove said both companies need a merger because, standing alone, they lack the money to build capital markets businesses and other services needed to succeed in big-time banking.
Investment bankers say Amsouth Bancorp., based in Birmingham, Ala., could be an attractive target, particularly because of its 117 branches in Florida. They said the franchise could attract a banking company already in Florida, such as First Union.
James K. Schmidt, portfolio manager at John Hancock Advisers Inc., said Amsouth could be attractive enough for both First Union and Banc One to make offers.
Regardless of what deals actually happen, the Barnett merger has forced bank boards of directors and senior managers nationwide to stop and think about their future in the business.
Barnett, it is generally conceded, got a lofty price partly because of its great franchise. But it also took advantage of what has proven to be a record period for prices for just about any bank.
"If boards want to maximize shareholder value and get the current multiples, the Barnett deal has got to make them think," said Goldman's Mr. Berlinski.
