Boosting its presence in neighboring New Jersey, CoreStates Financial Corp. of Philadelphia agreed Monday to buy Constellation Bancorp in a stock swap valued at $312 million.
Constellation, which has $2.3 billion in assets and 49 branches in central New Jersey, had been the subject of takeover rumors for months.
The price tag was equal to two times Constellation's book value, a stiff premium for a company saddled with problem loans.
Constellation had $177.8 million of nonperforming assets at June 30, equal to 9.78% of loans plus foreclosures. Most of the problem credits involve commercial real estate.
|We Feel Comfortable'
CoreStates chairman Terrence A. Larsen said that "though nonperforming assets are high, we feel comfortable that the overall risks are manageable."
The deal, scheduled to be completed in the first quarter next year, is expected to dilute CoreStates' earnings by less than 1% in 1994 and increase profits slightly in 1995.
CoreStates' shares closed down $1.50, at $55.625, on the New York Stock Exchange on Monday, while the overall market rallied.
Takeover Premium Built In
Constellation closed unchanged, at $10.375. The fact that its price did not rise, as is typical for acquired companies, reflected the fact that a takeover premium had already been built into Constellation's price.
Analysts said the acquisition is strategically important for CoreStates. "It's certainly not inexpensive for a franchise that has significant asset quality problems," said Jeffrey Naschek, an analyst at Salomon Brothers Inc. "But now they are well positioned in the state."
The deal would make CoreStates the fourth-largest banking organization in state, with $6.5 billion in assets. Overall, the banking company has $23.5 billion of assets.
Constellation is CoreStates' third acquisition in New Jersey in the last year. Last September the bank acquired First People's Financial Corp., a $1.1 billion-asset institution.
Last month the bank announced its intention to acquire Inter Community Bancorp., a $125.7 million-asset holding company.
30% Staff Cut Planned
CoreStates will consolidate Constellation's branch network with the 100 branches of CoreStates' New Jersey National Bank and close 12 overlapping offices, bank officials told analysts yesterday. The overlapping branches will include some CoreStates branches, they said.
The closings, as well as consolidation of back-office operations and a 30% staff reduction, will reduce Constellations operating costs by about $35 million, said Mr. Larsen.
CoreStates said that when the deal is closed, it would add $107 million to loan-loss reserves and take a $38 million charge related Constellation's foreclosures.
The company said it also plans to set aside $50 million to $100 million of Constellation's problem assets for bulk sale.
Constellation's president and chief executive, George Zoffinger, would become chairman of the merged New Jersey National Bank. Thomas A. Bracken would remain as president and chief executive of the subsidiary. How CoreStates Stacks Up in Mid-Atlantic Top players in PennsylvaniaBased on assets in PA-basedbank subsidiaries on March 31 Assets (in billions)PNCPittsburgh 37.0MellonPittsburg 29.7CoreStatesPhiladelphia 18.0IntegraPittsburgh 13.3MeridianReading 10.6First FidelityLawrenceville, N.J. 10.3 Top players in New JerseyBased on assets in NJ-basedbank subsidiaries on March 31 Assets (in billions)First FidelityLawrenceville 20.3UJBPrinceton 11.0MidlanticEdison 10.0CoreStates(*)Philadelphia 6.5National WestminsterJersey City 6.4ChemicalNew York 5.5(*) Includes pending deals.