Fifth Third Bancorp said Monday it had agreed to pay $892 million in stock for State Savings Co. of Columbus, Ohio.
For a price equal to 3.3 times book value-relatively high for a thrift company and higher than Fifth Third paid in previous deals-the Cincinnati- based company would increase its market share in Ohio's capital and gain a $500 million-asset toehold in Arizona.
Analysts said they had confidence that $20.9 billion-asset Fifth Third, a company noted for cost-consciousness and riding an industry-leading stock-price multiple of 28 times estimated earnings, will be able to take out enough costs and generate sufficient revenues to justify the price.
Closing is anticipated in the second quarter, and Fifth Third said it would have an immediately positive impact on earnings. Through nine months last year, State Savings had a 1.35% return on assets.
Most of State Savings, a privately held thrift company with $2.8 billion of assets and 53 branches, would be merged with Fifth Third Bank of Columbus to bring that unit's assets to $3.9 billion and deposits to $2.6 billion.
Its deposit share in Columbus would be 15%, rising one place to fourth in the market behind Banc One Corp., National City Corp., and Huntington Bancshares.
Two Toledo branches of a subsidiary, Century Bank, would become part of Fifth Third Bank of Northwestern Ohio. Three Century offices in Cincinnati would become part of Fifth Third's flagship bank.
The 10 locations of State Savings Bank, Scottsdale, Ariz., would become Fifth Third Bank FSB and continue to operate under its chairman, David E. Reese, and president and chief executive officer William Robert.
Despite the geographical expansion, analysts said Fifth Third's primary motivations are closer to home.
Catherine Murray of J.P. Morgan Securities said it is focused on core banking markets in Ohio, Indiana, and Kentucky. It also seeks acquisitions with cross-selling potential, such as the recently announced deal for the Columbus-based brokerage Ohio Co., and is not shy about buying deposit- heavy companies because the deposits constitute cheap funding for lucrative lending.
State Savings appears to meet all the criteria for Fifth Third's acquisition strategy, Ms. Murray said.
"In the scheme of things, (State Savings) is not a huge acquisition but it does notably improve its presence in Columbus," said analyst Sandra Flannigan of Merrill Lynch & Co.
Though the company could afford to do larger deals, it has been making bite-sized, in-market acquisitions that can be absorbed quickly.
"We've still got plenty of capacity to do more transactions," Robert P. Niehaus, Fifth Third's executive vice president of retail banking, said Monday.
Fifth Third said it would take a pretax charge of $65 million-mostly to cover employee-related costs-when the State Savings purchase closes.
The company anticipates cutting State Savings' costs by 35%, or $21 million. But it did not reveal how many of the target's 650 jobs would be eliminated. Officials said salaries and benefits would account for 41% of the cost savings.
The company was also mum about branch closings, but observers anticipated they would be minimal because of Fifth Third's desire to grow in Columbus.
Donald B. Shackelford, vice chairman of State Savings, said technology demands played a role in the decision to sell. "The pace of technology is something the industry has been talking about for 25 years," he said, "but I really do think the pace is picking up."
Mr. Shackelford is to become chairman of Fifth Third of Columbus and a director of Fifth Third Bancorp, joining State Savings chairman and CEO David E. Reese on the holding company board.
Patrick J. Fehring Jr. will continue as president and CEO of Fifth Third Bank of Columbus.
State Savings, which has about 100 shareholders, retained investment banker Keefe, Bruyette & Woods Inc. in November and moved quickly to find a suitor. Mr. Shackelford said five companies, all with extensive Ohio operations, expressed interest and two did due diligence.
Fifth Third shares closed Monday's trading up $1.25, at $82.75.