Comerica to Merge With Detroit Rival

Stock Swap Valued at $1.2 Billion

In what Wall Street hailed as a true merger of equals, Comerica Inc. announced on Monday that it would acquire Detroit rival Manufacturers National Corp. for about $1.2 billion in stock.

The merged entity, to be known as Comerica, would have about $27 billion in assets, making it the 25th-largest banking company in the country.

Comerica, now with $14.3 billion, ranks 43d; Manufacturers, with $12.5 billion in assets, is 46th.

Both Stocks Driven Up

Investors sharply drove up the shares of both companies. Comerica's common was up $5 to $47.875 in afternoon trading, compared with book value of $31.72 at Sept. 30. Manufacturers National shares closed up $3.625 to $37.375, compared with a book value of $25.85.

The stock prices of Michigan's four other big banks also rose Monday on speculation that they could be forced to merge as well.

The compact is a clear departure from other big mergers fashioned this year, analysts said, in that both partners have sound earnings, capital, and credit quality. The $115 million restructuring charge that Comerica is projected to take is minuscule compared with those expected in other big mergers.

"This deal is a breath of fresh air," said Frank Anderson, a senior analyst with Stephens Inc., Little Rock, Ark.

Under the terms of the transaction, each Manufacturers' common share will be exchanged for 0.81 new Comerica common share. Based on Comerica's closing price of $47.875, the transaction has an indicated value of $1.2 billion. That makes it the seventh-largest merger by value ever announced.

Second Deal in Two Months

The acquisition is the second major Michigan banking merger in two months, following Kalamazoo-based First of America Corp.'s September agreement to buy Security Bancorp, Southgate.

Analysts say the two mergers put the most pressure on Michigan National Corp., Farmington Hills, which has suffered substantial portfolio deterioration. Detroit-based NBD Bancorp is expected to sustain its strategy of expansion into the state of Illinois.

Comerica and Manufacturers differ sharply in their strategies, providing the promise of greater diversity in the merged entity and a higher probability of retaining both books of business. Comerica focuses on small businesses and upscale consumers; Manufacturers National is a large corporate bank.

One potential hitch, some analysts say, is the "merger of equals" focus in the transaction. The two companies have laid out a relatively slow timetable to achieve an estimated $145 million of annual cost savings that equals 15% of combined overhead. For example, Comerica's 1994 target for full realization of savings is a full year behind that set by Society Corp. in its acquisition of rival Ameritrust Corp.

Jobs Lost: 1,800

Comerica expects to eliminate about 1,800 jobs, or roughly 13% of the combined work force. Mr. Miller gave analysts his personal assurance that necessary positions won't be created "as consolation prizes to managers who don't make the cut."

And the absence of any appreciable credit quality problems considerably eases pressures on the merger partners, analysts say. At Sept. 30, only 1.24% of the combined loan portfolio was delinquent, and combined loss reserves equaled a healthy 127% of problem loans.

While Comerica shareholders will end up with a 55% stake, Manufacturers National chief executive Gerald V. MacDonald, 52, will be chairman and chief executive of the merged entity.

Mr. MacDonald will relinquish his post in June 1994 to Eugene A. Miller, who is Comerica's chairman and chief executive. Mr. Miller, 54, will be president and chief operating officer of the merged entity.

Mr. MacDonald and Mr. MIller said they were motivated by a desire to boost relatively low price-earnings multiples accorded by analysts who viewed their institutions as too big to easily acquire and yet too small to make large acquisitions themselves.

Together, Comerica and Manufacturers National held $21.8 billion of assets in Michigan at Sept. 30. They expect to close 60 of their combined 384 branches in the state; most closings will take place in the heavily concentrated southeastern Michigan market.

At the same time, the companies made it clear they would seek further acquisitions after the merger is completed. The new Comerica will seek to expand Manufacturers National's $1.6 billion presence in Illinois and Comerica's budding franchises in California, Florida, and Texas.

Aspirations for Trust Business

Between them, the two companies about $25 billion of trust assets, and the merged company will seek to expand that business as well.

On a consolidated basis, the merger partners are already in the top echelon of performance among larger U.S. banking companies.

During the nine months ended Sept. 30, for example, the two outfits together posted a 1.04% annualized return on average equity and a 15.89% annualized return on average equity. And at the end of the third quarter, the companies reported a combined 5.87% ratio of tangible common equity to total assets.

The performance ratios in fact are what other merger partners hope to achieve after their deals are completed and cost savings are realized.

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