C&S Stock Commands High Premium
The largest shareholders of C&S/Sovran Corp. stand to get a significant premium for shares they own in the wake of the company's weekend merger deal with rival NCNB Corp.
But other banking stocks did not jump in response to the unveiling of the deal, as they did after the announcement a week ago of the combination of New York's Chemical Banking Corp. and Manufacturers Hanover Corp.
"Some of the market euphoria for this deal was anticipated and discounted by investors," said Frank J. Barkocy, banking industry analyst at Advest Inc. "The big surprise would have been if this hadn't happened."
C&S Stock Jumps $1.50
It was a different story for C&S shareholders, whose stock jumped $1.50 on Monday to $27.375 a share - still less than the $31.08 value they hold in the merger, based on last Friday's price.
Investco Capital Management, Atlanta, which owns 6% of C&S/Sovran - making it the largest shareholder - racked up $42.13 million in paper gains, thanks to the agreement struck on Sunday.
By cashing in now, Miller, Anderson & Sherrerd, a Philadelphia money management firm, would reap a $10.4 million premium on the two million shares it owns. College Retirement Equities, owner of 1.51 million shares, would garner $7.9 million.
C&S shareholders are getting 0.84 share of NCNB stock for each of their C&S shares. That is at the high end of estimates by analysts of how much NCNB would be willing to pay.
Analysts had guessed the price would range from 0.75 to 0.85 NCNB share. At 0.84 share, the price was near the maximum NCNB could pay without risking its tax benefits with a change in control of the company.
On news of the deal, NCNB's stock fell $2 to $35, reflecting the premium to be paid.
But large NCNB shareholders did not seem perturbed by the deal. "We are in accord with their strategy," said a spokesman for Jefferson-Pilot Corp., Greensboro, N.C., the insurance company that is NCNB's largest shareholder, with 4.9 million shares.
"If paying up a bit means the combination will go more smoothly, then I think that's smart," said Roger Engemann, chief executive officer of Roger Engemann & Associates, which owns 1.6 million shares of NCNB.
"Our feeling has been basically to stick with good management, which we think NCNB has," he said. "We've owned their stock for some time. We were looking down the line at much higher power from NCNB alone and think they will make more money now."
Engemann & Associates, based in Pasadena, Calif., manages assets of $1.6 billion, principally for corporate pension and profit-sharing plans.
Estimates of the Premium
NCNB officials estimated Monday in New York that they are paying a premium of $1.3 billion to $1.7 billion over C&S/Sovran's book value, depending on assumptions about credit quality.
At a price of $31.80 a share, NCNB estimates it is paying 1.43 times book value for C&S/Sovran at end of June, and 1.55 times the "unaffected market price" before the annoucement was made.
At NCNB's price of $37 a share at end of trading on Friday, the deal had a value of $4.258 billion.
Unlike the two money-center institutions in New York, which are often been compared to each other, NCNB and C&S/Sovran have sharply different corporate cultures that will require deft work to combine, several analysts said.
Mr. Barkocy added that the market may be sensing that "the near-term picture for C&S/Sovran is still clouded and that further significant problem assets will have to be recognized and charged down."
A weekend story in Barron's offering a generally glum assessment of the nation's commercial real estate market also had a dampening impact on financial stocks and the stock market in general.
PHOTO : Big Players Source: CDA Investment Technologies Inc.