C&S Stock Soars As Merger Talks Start with NCNB

ATLANTA -- C&S/Sovran Corp.'s stocks soared Wednesday after the beleaguered company confirmed it was holding preliminary merger talks with NCNB Corp.

C&S/Sovran's stocks closed Wednesday at $22.75 a share, up $3.37, in heavy trading of 3 million shares. NCNB's stock closed at $38.25, up 12.5 cents.

Could be 2d-Biggest

A merger of Charlotte N.C.-based NCNB with C&S/Sovran, which has joint headquarters in Atlanta and Norfolk, Va., would create the nation's second-biggest banking company, with $116 billion in assets.

C&S/Sovran chairman Bennett A. Brown was understood to have met with NCNB chairman Hugh L. McColl Jr. in Charlotte Wednesday and was expected to report back to his board today. C&S/Sovran's announcement that its board had authorized Mr. Brown to meet with NCNB suggested the company was facing pressure from institutional investors to hear out NCNB.

"There's probably a fair amount of pressure on C&S/Sovran to consider any reasonably attractive offer," said bank analyst Richard I. Stillinger of Keefe, Bruyette & Woods Inc. in New York. "And I think NCNB can make such an offer."

Meanwhile, NCNB disclosed Wednesday that it would report second-quarter earnings of $135 million to $145 million, or $1.20 to $1.25 a share. The projected earnings exceeded analysts expectations, prompting speculation the company made the disclosure to bolster its stock price in preparation for a bid on C&S/Sovran.

Spokesmen for both companies declined to comment Wednesday.

Earlier NCNB Bid Rejected

Two years ago, Mr. Brown rejected a $39-a-share bid from NCNB when he was chairman of Atlanta-based Citizens and Southern Corp., one of C&S/Sovran's predecessor companies. He signed a merger agreement with Norfolk-based Sovran Financial Corp. five months later, a move many believe was designed to thwart any future bid from NCNB.

The deteriorating financial condition of C&S/Sovran is said to be the primary force pushing the two companies together again.

C&S/Sovran's delinquent loans and foreclosed real estate soared 57%, to $1.1 billion in the first quarter. More than 80% of the increase came from the District of Columbia area.

The company has warned analysts to expect another surge in nonperformers in the second quarter and is believed to be contemplating a dividend cut. It disclosed last week that its Washington and Virginia bank subsidiaries had signed regulatory agreements to shore up their loan operations.

"It's clear there's something behind the scenes going on at C&S/Sovran that's impelling them into this meeting," said Bob Chapman, an arbitrageur at the County NatWest unit in New York of National Westminster PLC.

Diluting C&S Problems

John S. Poelker, a consultant at Edgar, Dunn & Co. in Atlanta and a former chief financial officer of Citizens and Southern, said it would take C&S/Sovran about three years to recover from its loan troubles.

"Merging with NCNB dilutes the extent of C&S/Sovran's problems," Mr. Poelker said. "Those problems become less significant in a $100 billion-asset company than in a $50 billion company."

Because of the uncertainty over the depths of C&S/Sovran's problems, analysts were divided over how much NCNB might be willing to pay. Ballpark estimates ranged from $28 a share to $35 a share, or $3.8 billion to $4.7 billion.

Clearly, the starting point for analyzing a potential price would have to involve reducing C&S/Sovran's stated book value of $21.62 per share.

"It's going to be based on an adjusted book value to conservatively reflect the current market values and further deterioration in D.C. real estate," said Kathryn Bissette of Interstate/Johnson Lane in Atlanta.

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