In negotiating their $2 billion merger, the 10th-biggest announced in this record year for banking, the chief executives of Bank of Boston Corp. and BayBanks Inc. kept their eyes on the retail prize.
They saw their greatest opportunity for strategic consolidations and revenue growth in consumer banking, particularly in the Massachusetts markets where they overlap. And while Bank of Boston offers complementary strengths in the corporate and international arenas, it was the potential retail synergies that had analysts singing the deal's praises on Wednesday.
"It makes so much strategic sense," said David Berry of Keefe, Bruyette & Woods Inc. "It fulfills the needs of both parties perfectly, and is one of those ought-to-happen deals."
"We've been trying to catch BayBanks for some time" in retail market share, Charles K. Gifford, Bank of Boston chairman and chief executive, said Tuesday night when the deal was announced.
So he went out and bought the company that he called "the best, most respected consumer bank in New England - and maybe the country."
The combination "leverages two of banking's most successful brand names and brings BayBanks' low-cost funding to Bank of Boston's diverse investment and corporate financing activities," said William M. Crozier Jr., the 63-year-old chairman of BayBanks. He will be chairman of the reconstituted Bank of Boston Corp. until retirement in 1998, while Mr. Gifford, 53, serves as president and chief executive.
Mr. Crozier said BayBanks' "technological and consumer marketing leadership can be harnessed both in the U.S. and overseas."
Conceding that Bank of Boston was struggling to attain consumer banking leadership, Mr. Gifford told analysts Wednesday, "Guess what? We'll get there - and we are there with this transaction."
And Mr. Crozier said, "This is a great opportunity for us to grow and invest in retail banking." His company already has primary banking relationships with 18% of Massachusetts bank customers - a number that the merger partners said would rise to 27% with the addition of Bank of Boston.
Bank of Boston said it will increase retail revenues to 47% of its total from 39%. Core deposits will rise to 92% of loans from 83%, which the company estimates will bring in $40 million to $50 million of pretax incremental revenue.
"In their home market, from a retail perspective, BayBanks could be considered in the driver's seat," said Sally Pope Davis, a bank stock analyst at Goldman Sachs & Co.
The BayBanks name will survive on retail offices. The lead bank is to become known as BayBank of Boston, its logo combining the Bank of Boston eagle with the stylized green "BayBanks" that seems ubiquitous on Boston- area street corners and automated teller machines.
Mr. Gifford said his erstwhile rival owns "the premier consumer brand name in this area," and, "I don't think we spent more than 30 seconds discussing" whether BayBanks was the right name to adopt.
In fact, the two chief executives said their negotiations proceeded without any hitches since they got down to business about a month ago. And they said there were no other bids on the table, in contrast to the conflicting offers and very public wrangling that followed Bank of Boston's merger proposal to CoreStates Financial Corp. earlier this year.
That incident led to Mr. Gifford's replacing Ira Stepanian in the $46 billion-asset Boston institution's top job. Analysts said Mr. Gifford changed the climate internally and developed a strong bond with Mr. Crozier over the last few months.
Thus they easily overcame the "social issues" that are "usually one of the first things banks talk about" in merger negotiations, said Mr. Berry, the Keefe Bruyette analyst. They recognized "there is real brand equity in the BayBanks name."
Brown Brothers Harriman analyst Nancy Bush, an outspoken critic of the CoreStates proposal, said the BayBanks agreement brings a "happy ending" to a turbulent year.
"A lot of people who had been holding Bank of Boston for a takeout are out of the stock," said Ms. Bush. Since Mr. Stepanian left, the conventional wisdom was that Mr. Gifford was not taking over the company only to sell it, she said.
Bank of Boston agreed to exchange 2.2 newly issued shares for each share of $11 billion-asset BayBanks, which amounted to 2.2 times book value and a 17% premium over the latter's share price on Tuesday.
On Wednesday, Bank of Boston shares fell $1.75 to $43.625 while BayBanks jumped $7.50 to $92.50.
The companies said they anticipate cutting 2,000 out of their combined 24,500 employees, mostly through attrition; closing 85 overlapping branches, leaving more than 400 in place; cutting combined domestic expenses by 11%, or $190 million a year; and getting a 6% earnings accretion by 1997.
Analysts generally said that the new Boston bank remains a takeover candidate, although probably not in the near future.
"Even though it's much bigger, it's still in the acquirable range," said Mr. Suozzo. Possible purchasers might include BankAmerica Corp., NationsBank Corp., Banc One Corp., or even the new Chase Manhattan Corp.
In the stock market Wednesday, shares of Fleet Financial Group, which was once said to be pursuing Bank of Boston, fell 62.5 cents to $40.25 on rumors that Fleet was lining up a bid for the United States operations of National Westminster Bank.
Jeffrey Kutler contributed to this article.