In what would be its biggest deal, Greater Bay Bancorp in Palo Alto, Calif., has announced it plans to buy SJNB Financial Corp., the holding company for San Jose National Bank, for $173 million of stock.
The deal would be Greater Bay's ninth in Northern California since 1996 but its first in the state's third-largest city. In $648 million-asset SJNB, Greater Bay would gain what president and chief executive officer David L. Kalkbrenner called the "preeminent independent business bank" in San Jose, a market he considers crucial to the company's growth prospects.
Greater Bay currently has one branch in the city, with $150 million of assets.
"Our merger with SJNB means that if any of our competitors want to enter the San Jose market, they'll have to do it on a much smaller scale," said Mr. Kalkbrenner.
Like Greater Bay's other subsidiary banks, San Jose National Bank would retain its name, charter, board of directors, and management team. The deal, which is scheduled to close in the fourth quarter, would give Greater Bay $6.1 billion of assets, $4.8 billion of deposits, and 42 branches in the Bay Area.
Brock Vandervliet, an analyst at Lehman Brothers in New York, said the pooling-of-interests deal is a good one for Greater Bay.
SJNB shareholders would receive 1.82 shares of Greater Bay stock for each of their shares, or roughly 2.5 times SJNB's book value.
But the deal apparently did not sit well with SJNB shareholders. In heavy trading, SJNB's stock fell 2.44% Tuesday, to close at $40 a share. That could be because SJNB investors would be exchanging their stock, which has risen about 5% so far this year, for one that has declined more than 40% since Jan. 1.
Greater Bay's stock also dropped slightly, to $22.65.
In addition to the merger announcement, Greater Bay revised its earnings estimate slightly. The company now predicts per-share earnings of 47 to 48 cents in the quarter, down slightly from its initial forecast of 49 cents. Greater Bay earned 47 cents per share in the first quarter.
Despite the lower second-quarter profit target, Mr. Kalkbrenner said he remains upbeat about his company's performance.
"Our goal is to rank among the 10% of our peer group," he said. "Even with the [slowdown of the California economy], we're going to achieve that."
Mr. Vandervliet's outlook was less rosy. Investors fear that the "meltdown" of the dot-com sector of Silicon Valley could hurt Greater Bay, which is closely identified with the region's economy, he said.
"I think the market sees Greater Bay as a glass that is half-empty, and it's afraid someone is going to drill a hole in the bottom," Mr. Vandervliet said.