Bank of Boston Corp., in a step to fend off mounting competition in its home market, said Wednesday it had agreed to acquire Boston Bancorp, parent of a leading thrift in the area.
The deal, with an estimated value of $220 million, follows a series of failed attempts by Bank of Boston to find a merger partner. Experts said the deal showed that the company was not pinning its hopes entirely on merging with another big bank or being acquired.
"It's one more signal that they are not sitting there waiting for someone to snatch them up, that they have independent growth plans of their own," said Nancy Bush, a bank analyst with Brown Brothers Harriman in New York.
Bank of Boston, with $45.3 billion of assets has long said it wants a stronger retail presence in the Boston metropolitan market. Increased pressure from Fleet Financial Group's agreement to buy Shawmut National Corp. and the success of crosstown rival BayBanks Inc. make the issue especially pressing.
The deal will bring Bank of Boston some $1.3 billion of deposits held by Boston Bancorp's main unit, South Boston Savings Bank. The thrift's investment portfolio will be converted into cash-equivalent assets for Bank of Boston to reinvest after the closing.
"This gives us the No. 1 market share in six communities where (South Boston Savings) has branches," said Peter Manning, Bank of Boston's executive director for mergers and acquisitions.
Analysts added that they also liked the deal because it provided Bank of Boston with a low-cost source of deposits to plow into loans.
In July, Bank of Boston was widely reported to be negotiating a merger- of-equals with CoreStates Financial Corp. But those talks fell through, as did similar talks with Mellon Bank Corp. Earlier this week, CoreStates announced a deal to acquire Meridian Bancorp for $3.2 billion.
The Boston Bancorp deal, though much smaller in scope than the scotched merger plan, almost unraveled over price, analysts said. In the end, however, Bank of Boston cut a favorable deal, they declared.
The deal is carefully structured so that Bank of Boston will only pay for Boston Bancorp assets once they have been converted to cash equivalents. Boston Bancorp owns some $1.1 billion in mortgage-backed securities that will have to be sold before the deal closes, along with the rest of its $2 billion investment portfolio.
Bank of Boston said it would pay an estimated $40 million premium over the book value of Boston Bancorp. Based on a July 31 book value per share of $34.46, Boston Bancorp's total equity equals about $181 million, bringing the total price that Bank of Boston will pay for the thrift to $220 million.
The deal is expected to close in the second or third quarter of 1996.
Though analysts generally approved of the transaction, Bank of Boston's stock dropped 50 cents Wednesday to $47.50. Boston Bancorp closed Wednesday's trading at $37.50, up $1.
The acquisition takes Bank of Boston a little further away from its image as a global bank - a reputation derived largely from its extensive Latin American operations.
"Bank of Boston is a mix of a regional and money center bank," said Michael J. Starr of A.G. Edwards. "Over the last three or four years, it's become more of a regional bank."