First Union Corp. said Monday that it plans to buy Everen Capital Corp. for $1.1 billion, a move that would bolster its already formidable presence in retail brokerage.
With the addition of the Chicago firm, First Union would expand its roster of licensed retail securities brokers by 42%, to 6,259. That would place the Charlotte, N.C., banking company sixth in the field, just behind PaineWebber Group Inc. and ahead of A.G. Edwards & Sons Inc. It now ranks 10th, according to the Securities Industry Association.
The stock transaction, which is slated to close in the third quarter, would also bring First Union's investment group into six mostly fast- growing states: California, Wisconsin, Illinois, Texas, Ohio, and Colorado. In all, the business would span 41 states and would have three million customers, a 46% increase.
"We will have one of the largest, most experienced networks of brokers in some of the nation's most attractive markets," said Donald A. McMullen Jr., executive vice president and head of First Union's Capital Management Group.
The deal comes one month after First Union and Everen unveiled a joint venture that would combine the $70 billion of mutual fund assets they manage under a single roof.
Observers said the deal puts weight behind First Union's bid to compete in the lucrative business of selling securities to consumers. Since the early 1990s, chief executive officer Edward E. Crutchfield has made investment services a high priority and, piece by piece, he has assembled products and the sales forces to distribute them.
First Union's February 1998 acquisition of Wheat First was a product- line expansion, said Catherine Murray, an analyst with J.P. Morgan & Co., New York, but "this is an addition of geography and customers."
"It pretty much gives them national distribution," said Burton J. Greenwald, a mutual fund analyst based in Philadelphia. He said Everen brings a "entrepreneurial sales culture" to the mix at First Union. "Wheat First had that, but it didn't have scale."
James R. Boris, Everen's chairman and chief executive officer, said the decision to sell was a nod to "competitive pressures."
'There was a distinct need for us to be involved with a partner with a bigger capital base," Mr. Boris said. Everen will be merged into the First Union Securities name, in recognition of the bank's greater brand identity, he added.
Ms. Murray described the timing of the deal as "a bit surprising," given that First Union president John R. Georgius indicated to investors in January that the bank might be shying away from an acquisitive strategy. But, she added, "this isn't a major bank acquisition that needs to be integrated into the bank. This is an expansion of an existing business."
In asset management, First Union and Everen would have a total of $152 billion of assets under management, including $71 billion of mutual funds.
Based on last year's results, First Union said, the deal would boost revenues from asset management, brokerage, and investment banking by 26%, to $3.22 billion. The largest percentage gain would come from brokerage, where First Union pulled in $763 million last year, versus Everen's $446 million.
The deal is valued at 18.8 times earnings, based on Everen's 1998 results, or 2.65 times book. That is in line with recent acquisitions of similar size, Ms. Murray said.
The bank would take a pretax charge of $55 million to $60 million in the third and fourth quarters, Mr. McMullen said. First Union shares closed down $1.25 at $53.75 Monday, a day when bank stocks in general faltered.