CHARLOTTE, N.C. - In the largest bank acquisition of a mutual fund company to date, First Union Corp. has agreed to buy Lieber & Co., which manages the $3.3 billion-asset Evergreen Funds.

With the stock acquisition, which is valued at about $127 million, First Union will take a giant step toward its goal of becoming a mutual fund power-house.

The deal also marks the boldest move yet by a bank to expand its mutual fund business through acquisition. It dwarfs Chase Manhattan Bank's purchase last March of the $120 million-asset Olympus family of funds.

"This is part of the trend among the largest institutions to prepare themselves for the day when they will have to be broad-based financial services companies," said Edward Furash, president of Furash & Co., a Washington-based bank consulting firm.

Fund Assets to Double

Upon completion of the deal, First Union's mutual fund assets will nearly double to $6.9 billion. That would catapult the North Carolina bank to sixth place from 24th among banks that manage mutual funds.

In addition, First Union's fund offerings will grow to 28 portfolios, including a wide range of stock funds. Currently, the bank has but one stock fund among its 13 First Union Funds.

First Union officials said Lieber & Co.'s 20-year track record as a manager of top-performing mutual funds made the Purchase, N.Y., company an attractive takeover target.

"We will be acquiring a top performer that will complement and strengthen First Union's mutual funds," said John R. Georgius, president of First Union Corp.

If it manages the new company right, First Union should get more than just a boost in fund assets, said A. Michael Lipper, chairman of Lipper Analytical Services, New York.

"You're buying image, some skills, and - as long as you don't foul up - a flow of revenue," Mr. Lipper said.

First Union has made no secret of its ambitions to be a major player in the mutual fund business. The bank's chairman, Edward E. Crutchfield, has said that he wants to build First Union's mutual fund assets to $25 billion within several years.

In addition, the bank is in the process of training 2,600 employees to sell mutual funds at its 1,300 branches.

First Union's stock was off 50 cents Tuesday, to $41. Bank shares were battered across the board amid fears that the industry's profit margins are under pressure.

Under terms of the deal, First Union will issue 3.1 million shares of stock to Lieber & Co. The price tag comes to $127.1 million, based on First Union's price at 4 p.m. Monday.

Ken Stancliff, First Union's treasurer, called the price "very reasonable." The acquisition, which is expected to close in the first quarter of 1994, will not dilute First Union's earnings in 1994, and will add to earnings beginning in 1995, even if advisory-fee revenues stay flat, Mr. Stancliff said.

But some observers had doubts. "It seems to me that it's an extremely healthy price," said Mr. Lipper, adding that a price of 3 1/2 times revenue would be closer to the norm.

The Evergreen Funds generated $23 million in pretax revenues for Lieber & Co. in 1992, according to First Union officials.

These revenues - which represent fees paid by the Evergreen Funds for Lieber & Co.'s investment-advisory services - are low, relative to the price First Union is paying for the company, Mr. Lipper said.

One quirky feature of the deal is that the Evergreen Funds carry no loads, or sales charges, while the First Union Funds are sold with front-end and back-end fees.

Such fees are usually necessary to compensate bank sales-people, so First Union "will have to resolve all the pricing conflicts," said Avi Nachmany, a partner with Strategic Insight, a New York-based mutual fund consulting firm.

Though the Evergreen Funds will continue to operate under their own name, they will be restructured to bring the pricing in line with the First Union Funds, said Richard Wagoner, head of First Union's capital management group.

First Union officials said they expect smooth sailing on the regulatory front. The acquisition was reviewed in advance with the Federal Reserve Board and the Office of the Comptroller of the Currency, Mr. Georgius said.

The Glass-Steagall Act allows banks to offer and advise mutual funds. But banks cannot sponsor or distribute these funds.

Fund sponsors serve as underwriters, putting up the money to register the funds with the Securities and Exchange Commission and to clear them for sale.

First Union would probably have to spin off any sponsorship or distribution done by Lieber & Co., said Brian W. Smith, partner at Mayer, Brown & Platt 1, a Washington law firm. "It's likely the Federal Reserve would say you can't do that in the bank or its holding company."

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