First Union Corp. chairman Edward E. Crutchfield has taken plenty of heat over the years for bingeing on bank acquisitions.
But on Wednesday, as he unveiled details of his $16.1 billion deal for CoreStates Financial Corp., he was anything but apologetic.
"When you're in an industry that is consolidating, the time to do a transaction of this type is when you can," Mr. Crutchfield said.
CoreStates, he said, was a solid strategic fit for First Union, which has spent the last few years maneuvering to become a dominant player up and down the East Coast.
Analysts and investors didn't seem to have much argument with Mr. Crutchfield, who spoke at a press conference in CoreStates' hometown of Philadelphia. First Union's shares closed Wednesday at $49.50, down 75 cents. That's a much smaller drop than is often suffered by acquirers on acquisition announcements.
Nancy Bush, an analyst with Brown Brothers Harriman & Co., downgraded First Union's stock following the deal announcement. But she said First Union made the right move strategically.
"The company is doing the correct thing," Ms. Bush said. "If First Union wants to be the dominant retail bank on the East Coast, CoreStates was the best deal.
"We're in a very unusual era here in banking," she continued. "These guys have to do these deals. But you have to be willing to wait years to see the payoff."
For First Union, the CoreStates deal caps a string of announced deals this year with a combined price tag that now exceeds $20 billion. Among the other targets: Signet Banking Corp. and investment bank Wheat First Butcher Singer, both of Richmond, Va.
As observers gawked at the sheer size of the deal, Mr. Crutchfield dismissed any suggestion that he was trying to outdo archrival Hugh L. McColl, chairman of NationsBank Corp., whose August deal for Barnett Banks Inc. stood as the biggest until now.
"Hugh who?" Mr. Crutchfield quipped.
Mr. Crutchfield said the deal price-5.4 times book value-reflects the large market share gains the deal brings and the premium First Union places on CoreStates' corporate banking capabilities.
"We're joining forces with somebody who has been a corporate banking organization decades longer than we have and does it better than we do it," he said. (See related story, page 1)
For CoreStates, the deal offers an opportunity to align with the sixth- largest banking company in the country and one considered by many to be on the leading edge. Technology needs are a big factor in making the partnership attractive, as are First Union's strong consumer banking operations, said CoreStates chairman and chief executive officer Terrence A. Larsen.
Mr. Larsen said he had been reluctant to sell the Philadelphia-based organization, but became convinced First Union's offer was the right deal at the right time.
"Saying yes to a merger is not something that comes easy to CoreStates," Mr. Larsen said. "We're choosy. But there was no other partner who would provide as compelling a strategic fit."
Because of its size and scope, the deal promises a host of integration challenges. And frustrated investors will have to endure at least 18 months of drag on First Union's earnings.
But it also brings some clear benefits. With the acquisition, First Union would command a 33% market share in Philadelphia and would be the top bank both Pennsylvania and New Jersey. Without CoreStates, First Union is second in market share in New Jersey and fifth in Pennsylvania.
The deal would also move First Union's Delaware presence from 37th to seventh.
Moreover, CoreStates is seen as a good addition to First Union because of its strong corporate banking capabilities. While its consumer banking operations have been lackluster, CoreStates has excelled at serving corporate clients.
But the integration process will undoubtedly be painful for many. With a projected $723 million in cost savings needed to make the deal work, large- scale layoffs and branch closings are likely. Some 55% of CoreStates' branches are located within two miles of First Union branches and First Union expects to cut at least $370 million by 1999 through branch consolidations. Industry observers say because of its concentration in Philadelphia, the combined company would need to divest about $900 million of deposits there.
In addition to the savings from branch cuts, the company expects to get a further $184 million in savings from personnel cuts and $169 million in other operations consolidations.
The company plan to take a $795 million charge-after tax-in the second quarter of 1998 to cover restructuring moves.
First Union's courtship of CoreStates was a whirlwind romance by most measures. The companies only began conversations within the last several weeks, after Mellon Bank Corp. of Pittsburgh made unsuccessful overtures to CoreStates, including a bid of $88 a share. Industry observers said Mr. Crutchfield continued wooing CoreStates' Mr. Larsen even after several rebuffs only to win the company over with an array of enticements.
Sweetening the offer, First Union has committed to expanding the Philadelphia-based operations with about 3,000 jobs across a range of operations, including two new call centers the company will open there.
In addition, First Union said it will set up a $100 million community foundation for the area, and spend $16 million to help displaced employees find new jobs.
"This kind of sensitivity and commitment to our employees was very important to me in reaching an agreement with First Union," said Mr. Larsen.