BB&T Corp.'s plan to start making acquisition deals next year has brought a downgrade - to "sell."
Deals could dilute its share price, analyst Kevin Fitzsimmons of Sandler O'Neill & Partners LP said in a research note Wednesday. He previously rated the stock "hold."
"Florida is without a doubt their top priority," but the scarcity of potential targets there has inflated their prices, he said in an interview. "That implies a potential for a very expensive, high-premium deal, which depending on how you structure it could be very dilutive to '06 earnings and their tangible book value."
Alternatively, BB&T could do several smaller deals in a row, he added. But whatever happens, for a while the stock will be suffering from the "perception that they are primed and ready to do deals," he said.
Mr. Fitzsimmons also said the stock of the $107 billion-asset Winston-Salem, N.C., company is too expensive. Its price has risen nearly 16% since third-quarter earnings were reported in October; it reached a 52-week high of $43.90 last Tuesday.
But Jefferson Harralson, an analyst at Keefe, Bruyette & Woods Inc., doubts that BB&T will embark on a buying spree. It will be "more conservative" than in the past when buying banks, partly because it is expanding through building branches, he said. It has built roughly 60 this year.
In January 2003, after announcing a deal for First Virginia Banks Inc. that investors called pricey, BB&T said it would abstain from further bank deals until January 2006. Meanwhile it has concentrated on internal improvements and nonbank deals.
John A. Allison, BB&T's chairman, president, and chief executive, said during its Oct. 14 earnings call that it is looking for banking companies with $500 million to $15 billion of assets.
But Florida banks are mostly too expensive, he said. It is "frankly … a very easy market" to build branches in.
BB&T also has acquisition opportunities in other states, he said.
Analysts have been speculating for several months about what it might buy. The Florida names circulating include Fidelity Bankshares Inc. of West Palm Beach and Harbor Florida Bancshares Inc. of Fort Pierce - plus South Financial Group Inc. of Greenville, S.C., 40% of whose deposits are in Florida. Also mentioned are two Baltimore companies, Mercantile Bankshares Corp. and Provident Bankshares Corp.
A spokeswoman for BB&T said last week that it would not discuss the Sandler report or the M&A speculation. Fidelity, South Financial, and Mercantile representatives would not talk about whether their companies are BB&T targets.
Michael Brown Sr., Harbor's president and chief executive, said he was not surprised that his $3 billion-asset company was on analysts' lists. "There are not that many large independent institutions remaining in the state," he said.
He would not discuss BB&T, but he said Harbor will do what is best for its shareholders.
As for Provident, a spokeswoman, Vicki Cox, said, "We're proud of our stature as an independent bank and believe we are earning that right to independence every day."
