Despite being thrown into disarray over a reported $4.3 billion merger deal with CoreStates Financial Corp., Bank of Boston Corp. was expected to conclude the agreement over the weekend and announce it today.
Bank of Boston executives and directors tangled Friday amid criticism from major shareholders and banking analysts. It was a rare, publicly visible flareup of such a conflict prior to completion of a merger agreement.
Details of the deal appeared in major newspapers on Friday - apparently leaked by Bank of Boston executives who opposed it. But by the end of the day, the forces favoring the proposed merger of equals prevailed, according to a source familiar with the negotiations.
Neither Bank of Boston nor Philadelphia-based CoreStates would comment.
Investment bankers said heated disagreements erupted over terms of the deal and who should act as investment adviser. The dispute served to widen the rift between the Bank of Boston board and Ira Stepanian, the chairman and chief executive.
On Wall Street, meanwhile, many observers were predicting that another bidder would emerge to top the $38 share value that the CoreStates deal set for Bank of Boston. Speculation centered on NationsBank Corp., Mellon Bank Corp., and Bank of New York Co.
Nonetheless, a CoreStates-Bank of Boston merger suggests that desperation to survive - and not purely economic considerations - could become the guiding force behind many bank mergers, bringing potential acquisition targets together in mergers of equals.
"Certainly this was a defensive move," said Gerard Cassidy, a bank analyst with Hancock Institutional Services. "In the past, banks could resist consolidation, but not any longer. With revenue growth declining, banks must turn to acquisitions as a way to grow."
Bank of Boston has seen a series of merger prospects fall by the wayside. An agreement with Mellon was apparently scuttled because the Pittsburgh-based bank refused to move its headquarters to Boston.
Two months ago, Bank of Boston failed to complete a merger-of-equals agreement with First Fidelity Bancorp. of New Jersey, which subsequently hooked up with First Union Corp. of North Carolina.
Earlier this year, a linkup with Fleet Financial Group fell apart and Fleet decided to merge with another New England superregional, Shawmut National Corp.
Some Bank of Boston shareholders were said to be outraged at the CoreStates news. Many observers believed the two banks have contrasting lines of business with few apparent synergies.
"This deal is an abomination," stated Brown Brothers Harriman & Co. analyst Nancy Bush, a longtime champion of Bank of Boston's stock. She lowered her rating two notches, from "buy" to "avoid."
Most shareholders had been counting on a large acquisition premium. Indeed, short interest in the stock fell to zero in the month ending July 14. (See tables on this page and page 30.)
Harry Keefe of Keefe Partners was said to be livid, and Tiger Management, which owns 3.4% of the Boston bank, was also reportedly cool to the plan. Sources said opposition also could come from Mellon through its Boston Co. subsidiary, which owns 5.3%.
"I can't see how Bank of Boston would allow itself to sell out like this," said David Sloan, a fund manager with Sife Trust Fund, which owns 350,000 shares. He said he would vote against the merger.
"If this deal goes through, as much as consolidation was positive, this could be a very big negative by setting 1.5 times book as a precedent," he said.
Friday, while the S&P bank index rose 0.01%, Bank of Boston shares fell $1.75 to $40.125; and CoreStates fell $1.125 to $33.875.
Friday's chaos at Bank of Boston threatened to derail any possible deal, investment bankers said. Board member Richard Smith, chairman of Harcourt General Inc., was said to have taken on some responsibilities normally handled by Mr. Stepanian.
Mr. Stepanian was believed to have been excluded from the negotiations with First Fidelity and to have convinced his executive committee, which preferred to combine with Mellon, to go with CoreStates instead.
Directors spurned his choice of investment banker for the CoreStates deal, Merrill Lynch & Co., in favor of Goldman, Sachs & Co.
But if the CoreStates agreement goes through, Mr. Stepanian and his top management should be back in a strong position as post-merger assignments are sorted out.
Merrill is now advising Mellon on its options, as is Lazard Freres & Co. CoreStates is being advised by J.P. Morgan & Co.
Some observers questioned why Bank of Boston was in such a hurry. The bank reported stellar earnings last week and has both corporate and retail banking strengths, as well as extensive Latin American operations.
"Acquisitions tend to create at least an illusion of growth and forward progress," said John Heffern, an analyst with Natwest Securities. "But I don't understand why there is such a rush."
Kenneth Cline contributed to this article.