CHICAGO -- Firstar Corp. of Milwaukee said Monday that it has agreed to acquire First Colonial Bankshares of Chicago in a stock deal valued at $314 million.

With $1.8 billion of assets and 30 branches in metropolitan Chicago, First Colonial will more than double the size of Firstar in Illinois. Upon the expected completion of the merger early next year, Firstar will have $2.8 billion of assets and 45 offices in the state.

The transaction is the latest in a string of mergers that is rapidly consolidating one of the nation's biggest banking markets. The $22 billion-asset Continental Bank Corp. of Chicago soon will be swallowed by San Francisco-based BankAmerica Corp., and at least a half-dozen smaller buyout pacts have been signed over the last year.

"In terms of sizable franchises, there is very little left in Illinois," said Michael E. Sammon, head of banking research at Howe Barnes Investments Inc.

Based on Friday's stock prices, Firstar's offer is worth 190% of First Colonial's book value, or nearly 19 times analysts' consensus 1994 earnings-per-share estimate, as published by First Call Corp.

Roger L. Fitzsimonds, Firstar's chairman and chief executive, cited expense cuts as a "major benefit" of the deal, saying the 21 Illinois banking charters currently controlled by Firstar and First Colonial would be combined into one entity.

Firstar is projecting $24 million of annual savings from consolidations in Illinois, most of which will be realized in 1995. Projected expense cuts and revenue enhancements ultimately will exceed 30% of First Colonial's annual operating expenses, said Mr. Fitzsimonds.

Jon Stowe, head of acquisitions, said the deal would dilute Firstar's earnings per share by less than 0.5% in 1995 and would be accretive thereafter.

Firstars stock fell $1.25 on Monday, closing at $33.375. First Colonial closed at $23.75, down 37.5 cents.

Analysts who follow Firstar generally praised the deal, saying the First Colonial acquisition is manageably priced and would provide needed critical mass in the Windy City. "This ties together a better franchise," said Smith Barney analyst Henry C. Dickson.

John B. "Jay" Williams, head of community banking at Firstar Bank Milwaukee, was named to oversee Firstar's expanded .Illinois operations. The Company has not yet ascertained where the merged Illinois operations will be headquartered.

C. Paul Johnson, First Colonial's chairman and chief executive, will be nominated as a director of Firstar, but he will relinquish day-to-day management responsibilities.

The $13.8 billion-asset Firstar has banking Operations in Wisconsin, Iowa, Minnesota, and Illinois, and trust units in Arizona and Florida. The bank earned $95.7 million in the 1994 first half, for a 1.44% annualized return on average assets.

First Colonial earned $8.85 million in the first half, for a 1.05% ROA.

Donaldson, Lufkin & Jenrette represented First Colonial in the transaction. Firstar handled most of its negotiations itself and obtained a fairness opinion from Merrill Lynch & Co.

As part of the acquisition. Firstar said it would repurchase up to 765,000 of its shares in the open market, using those securities and up to 6.94 million newly issued shares to acquire First Colonial. Firstar agreed to pay First Colonial a $9.5 million fee if the deal falls through under certain circumstances.

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