CoreStates Said to Have Rejected $400 Million Bid for Its ATM Unit
CoreStates Financial Corp. seriously considered a $400 million offer for its crown-jewel ATM network before rejecting the bid two weeks ago, according to a source close to the bank.
The offer for the Mac regional automated teller machine network and related processing business was made by an investment group led by former CoreStates executives Bipin C. Shah and Gregory C. Dillett, the source said.
Both Mr. Shah, formerly chief operating officer, and Mr. Dillett, formerly chief financial officer, resigned from the Philadelphia-based bank in March.
The proposed deal included the entire Mac system - the ATM network and its data processing equipment, underlying processing contracts with banks, and point-of-sale networks used for processing retail purchases made by consumers.
Managers Opposed Deal
After weighing the proposal for more than a month, CoreStates' board rejected it, concluding that the highly profitable fee-based service was an integral part of the bank's franchise, according to the source.
The company's top management recommended against making the sale.
Mr. Shah and CoreStates declined to comment on the talks.
In an era of rapid change and consolidation in the banking industry, with aggressive institutions like CoreStates looking to quickly raise capital for acquisitions, the talks highlight the willingness of even financially sound banks to discuss selling some of their most lucrative assets.
At the same time, CoreStates is at a crossroads with the Mac network. Although the operation has been a considerable source of earnings growth for the bank, it now faces heightened competition from neighboring electronic funds transfer networks.
The sale of Mac - the largest regional ATM network in terms of switched transactions - would have deprived the $22.8 billion-asset CoreStates of a significant source of income. About 40% of its $114 million in profits in 1990 came from fee-based businesses, with the majority coming from the Mac system, according to the bank.
Exact Figures Not Available
However, since CoreStates does not break out revenue figures for Mac, it is unclear exactly how profitable the network is.
A banking consultant who asked not to be named said that he believed the $400 million bid was low. He said he believed the system was worth at least twice that to CoreStates.
The strong-willed Mr. Shah left CoreStates abruptly in February, apparently because of a clash with CoreStates' chairman, Terrence A. Larsen, over the direction the bank should take. Mr. Shah wanted to expand the bank's fee-based businesses while Mr. Larsen favored more emphasis on traditional banking businesses.
In previous interviews with the American Banker, Mr. Shah said he was looking around for a technology business to run.
Builder of the Business
In his 10-year tenure with CoreStates, Mr. Shah was credited with building the Mac and merchant payment businesses into highly profitable franchises. Before joining CoreStates in 1980, Mr. Shah headed American Express' credit card division.
An independent Mac could acquire other networks and cut costs, analysts said. Other bank networks might be reluctant to merge with Mac as long as it is owned by CoreStates, they said, because of competitive fears.
A competitive war is heating up in those markets - eastern Pennsylvania, western New York State, and New Jersey - where Mac overlaps with the New York Cash Exchange (NYCE) system, based in Hackensack, N.J.
"Mac is in a cage with a waking giant called NYCE," said Liam Carmody, president of consulting firm Carmody & Co., Woodcliff Lake, N.J. "If NYCE wanted to, and it pulled together a cohesive strategy, it could hurt Mac's competitive position."
"In my view, Mac is at its maximum value right now," Mr. Carmody added.