In a bid to expand its presence in the Great Lakes region, Fifth Third Bancorp of Cincinnati said Monday that it had agreed to buy Old Kent Financial Corp. for $4.9 billion of stock.

The purchase would be Fifth Third’s largest and would boost its share of metropolitan markets in Illinois and Michigan, two states the company has viewed as key areas for growth. George Schaefer Jr., Fifth Third’s chairman and chief executive officer, said the deal would add to revenues and earnings in the first year.

“We would not normally look at transactions of this size,” Mr. Schaefer said. “But in one transaction we’ve accomplished what would have taken, we believe, two years to piece together.”

True to its name, Fifth Third would become the fifth-largest banking company in the Chicago market and the third-largest in Michigan. The combined company would have $69 billion of assets, $43.8 billion of deposits, and 980 branches in Ohio, Kentucky, Indiana, Michigan, and Illinois.

Analysts said that the deal made sense for both companies. Fifth Third has been moving into western Michigan recently, buying small community banks, and has made no secret of its desire to buy in the Chicago market. Old Kent, based in Grand Rapids, Mich., has been struggling with revenue growth in recent quarters, and the deal is seen as a way for it to broaden its capabilities in fee-generating businesses such as leasing and capital markets.

“It’s a great match to some of the things we have been working on here,” said David Wagner, chairman and chief executive of Old Kent.

Fifth Third agreed to exchange 0.74 share of its stock for each share of Old Kent. The companies said the transaction would boost earnings by 11% in the first year. Cost savings were estimated at 20% of Old Kent’s operating expenses, with 25% of the savings coming next year, 50% in 2002, and another 25% in 2003.

One-quarter of the savings would come from Old Kent employee expenses, but neither company has mentioned layoffs. Fifth Third said it would record a $304 million pretax charge for the deal, which is slated to close in the second quarter.

Fifth Third’s stock sold off after the announcement Monday morning but recovered in the afternoon to close down 3.5%, at $46.375. Old Kent’s stock reacted favorably to news of the deal, which would pay it a 14% premium. Its shares jumped 34%, to $33.5625.

Analysts said that Fifth Third’s stock may reflect increasing concern about the risks of large mergers. Another pending deal in the Midwest — the combination of Milwaukee-based Firstar Corp. and Minneapolis-based U.S. Bancorp — has resulted in steep declines in the stock prices of both companies as investors question Firstar’s ability to swallow a company of roughly equal size so soon after two other large transactions in as many years.

“Fifth Third historically has not been involved in big deals,” said Joseph Duwan, an analyst at Keefe, Bruyette & Woods Inc. “There are some investor concerns over the integration.”

The deal would require Fifth Third to absorb a company that has roughly 20% of its market capitalization — previous deals have been for companies no larger than 10% — and nearly 60% of its asset size. But Old Kent and Fifth Third said they have few overlapping operations, which reduces integration risks.

Mr. Duwan and other analysts said risks may be mitigated by the decentralized approach Fifth Third plans to take. It already operates 14 regional affiliates. Its corporate headquarters would remain in Cincinnati, but Old Kent’s operations would become Fifth Third Bank, Michigan, with centers in Grand Rapids, Traverse City, and Detroit. Mr. Wagner would become chairman and chief executive officer of the region, based in Grand Rapids, and one of three new members of Fifth Third’s board of directors.

Other senior executives at Old Kent would find posts in the new organization. Kevin T. Gabat is to be president of the Grand Rapids market; Bradlee F. Stamper president of the Chicago market; and Robert H. Warrington president of Fifth Third Mortgage Co.

In a presentation to analysts Monday, Mr. Schaefer and Mr. Wagner outlined some of the company’s complementary strengths. Fifth Third would bring more middle- market commercial banking, merchant and transaction processing, and a sales-oriented branch culture. Old Kent would bolster small-business banking. Both companies have a presence in asset management. Fifth Third has $22.2 billion of assets under management; Old Kent, $11.9 billion.

“We are confident of our ability to grow revenues,” Mr. Schaefer said. “Together we are a heck of a lot better off.”

Fifth Third was advised by Salomon Smith Barney and Cleary, Gottlieb, Steen & Hamilton. Old Kent was advised by Merrill Lynch & Co. and Wachtell, Lipton, Rosen & Katz.


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