In its biggest acquisition ever, Boatmen's Bancshares on Thursday said it agreed to buy Worthen Banking Corp. for $595 million in stock, a pricey two times book for Arkansas' largest retail bank.

Analysts greeted the merger announcement cautiously, saying that Boatmen's would have to quickly produce cost-savings to prove that the transaction will not dilute earnings. But they also said the deal for $3.5 billion-asset Worthen gives Boatmen's the dominant position in Arkansas and boosts the case for continued expansion into the Sunbelt.

"I think it's a reasonable deal," said Joe Duwan, banking analyst at Keefe, Bruyette & Woods in New York City. "There is going to be a modest upfront dilution, but I think Boatmen's can do more with that franchise."

The transaction, expected to be completed early in 1995, comes a time when the company has run out of the inexpensive acquisitions that helped it quickly grow to a nine-state, $27.5 billion-asset bank.

"This was a natural fit for us," said James W. Kienker, executive vice president and chief financial officer of Boatmen's.

Given its late 1980s history, during which Boatmen's did several severely dilutive transactions, Wall Street has closely watched to see if the company would return to its old habits.

Observers agree two times book for Worthen is at the outer reaches of what Boatmen's can afford to pay.

"That's certainly at the top of the range," said Sal DeMartino at Mabon Securities.

Indeed, it is the second-highest multiple ever paid by Boatmen's for such a dominant franchise. Last year, the company raised eyebrows when it paid 1.65 times book value, or $325 million, for Sunwest Financial Services, a New Mexico and Texas franchise. The Worthen deal falls short of the 2.2 times book premium paid for First Amarillo Corp., which gave Boatmen's a 40% marketshare in the West Texas city.

Few dispute, however, that Worthen's operations could be a valuable addition to Boatmen's growing empire, linking Boatmen's home state of Missouri to the southwest, where it has most recently built its franchise.

Boatmen's will have the largest marketshare in Arkansas where it currently has 39 branches and $1.2 billion in assets in its Fort Smith, Ark.-based Superior Federal Bank unit. Boatmen's purchased the franchise in March 1992 from the Resolution Trust Corp. in an unusual voluntary supervisory conversion that effectively cost the bank nothing. Worthen operates 112 retail branches in Arkansas and six in Austin, Tex.

Mr. Kienker projected that new revenues and cost-savings would generate $13 million after-tax in 1995, or about 1% dilution in the first year. However, he estimated that would double to $26 million by 1996, adding just under two-cents per share.

In a late afternoon teleconference with analysts, Mr. Kienker said that Worthen will take a $15 million restructuring charge in the fourth quarter to prepare for the merger.

Although some analysts have privately criticized Boatmen's for a willingness to stretch estimates on possible savings and revenue synergies, Mr. Kienker said the estimates are solid.

"The numbers are right on," he said in an interview. "We've had a pretty good record of getting the cost savings we've projected in our deals since 1990."

He noted that Worthen has suffered from persistently high efficiency ratios, with a 66% mark just marginally higher than Boatmen's own 62%. But corporate overhead can be cut as Worthen digests its acquisition of cross-street rival Union Bank.

In a statement, Boatmen's said it had agreed to a fixed one-for-one exchange for each of Worthen's 17.3 million common shares.

Curt Bradbury, Worthen's chairman, president and CEO, who is credited with saving the bank nine years ago, said the fixed exchange ratio could mean a sweetened buyout for his investors. "My fervent hope is that Boatmen's stock price will rise," said Mr. Bradbury, who plans to leave the bank after the merger is completed. "Either way, I think this is a great deal for our shareholders."

Worthen was put into play in July after it retained Paine-Webber to evaluate its options. Just last week, the short-list of acquirers was down to Boatmen's

and NationsBank Corp. Joining Forces Dallars in billions Boatmen's WorthenHeadquarters St Louis Little RockAssets $27.6 $3.5Deposits $20.2 $3.0Banks 49 11Branches 400 119States 9 2Sources: American Banker, Ferguson & Co.

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