Banc One Corp. made news earlier this year when it called off a planned acquisition, citing a decline in its own stock price.
But while the collapse of its deal with Firstier Financial Inc., Omaha, was humbling for the vaunted acquirer from Ohio, it was a development that has been relatively rare in the banking industry recently.
Far fewer announced deals have been broken off in progress so far in 1994 than in past years of consolidation activity among banks. And there are some strong reasons why:
Asset quality, a frequent dealbreaker several years ago, is generally excellent across the industry.
Bank stock prices have generally held up well among both acquirers and targets despite an environment of rising interest rates.
Social and operational issues such as management priorities and of lines of command, as well as organization structures, are being resolved earlier and in more realistic ways than in some previous deals.
"Asset quality is generally strong, so the single biggest reason why a buyer would want to get out of a deal is no longer very prevalent," said H. Rodgin Cohen, a partner in Sullivan & Cromwell, the New York law firm.
In some previous cases, he said, the buyer had "gone in on the second look as part of due diligence and sometimes then found all sorts of problems."
Best in 20 Years
After a painful four-year period spent building reserves, purging itself of problem loans and replenishing capital, asset quality is probably at its best level in 20 years for most banks.
Perhaps the best-known deal cut down by asset quality concerns during that period was Bank of New York Co.'s proposed acquisition of Northeast Bancorp., Stamford, Conn.
The two companies sharply disagreed over Northeast's book value after problem assets began building for the Connecticut bank as the New England economy turned sour in 1989 and 1990.
Bank of New York had agreed six years before in 1983, during much better economic conditions, to pay 2.5 times Northeast's book value per share.
A $373 Million Difference
But by the spring of 1990, during the dispute over book value, Northeast calculated the value of its merger agreement at $602 million while Bank of New York put it at only $225 million.
The disagreement was a sad finale for a landmark merger deal.
It was Bank of New York's pact with Northeast that prompted the U.S. Supreme Court's 1985 decision that states could constitutionally form exclusive regional compacts to prevent entry by banks from large states like New York.
That ruling ushered in the era of interstate banking and changed the shape of the industry, particularly by permitting the Southeast Compact that led to the rise of such superregional giants as NationsBank Corp., Charlotte, N.C.
But it put the Bank of New York-Northeast merger on hold until Connecticut dispensed with interstate restrictions in 1990. After the deal fell through, Northeast, parent of Union Trust Co., was finally acquired last year by First Fidelity Bancorp., Lawrenceville, N.J.
Prices Remain Stable
Stock prices, the other principal spoiler of deals, have also cooperated recently. In particular, stock prices of banks considered acquirers and those viewed as likely acquirees have not diverged significantly. That enables deals, once struck, to be concluded within the price range anticipated by both buyer and seller.
The prominent exception this year is Banc One, which terminated its deal with Firstier Financial Feb. 14. The merger agreement was originally announced in April 1993.
The highly regarded Columbus, Ohio, banking company was long accorded a premium stock price by investors, which in turn enabled it to offer healthy premiums in buyouts of other banks without unacceptable dilution for its own shareholders.
That changed last fall after investors became concerned about risks to the bank's earnings from derivatives and trading activities in a tumultuous global market. Banc One's stock was among the worst performing bank issues last year.
As a result, the per-share exchange ratio in the Firstier deal that had been $60 in April 1983 when the transaction was unveiled had fallen to $44.86 by last Feb. 12. That dropped the value of the deal to $535 million from $712 million.
In a plain-spoken joint statement, the banks said: "Firstier requested Banc One to increase the exchange ratio to produce a value equal to the $52 per-share walkaway price in the merger agreement, [and] Banc One declined the Firstier request."
A third problem, social issues of various kinds, which once bedeviled some deals, have also receded in prominence.
Industry watchers say that the increased experience with mergers of major banks has led to resolution of many once-troublesome issues before a deal is struck, or even as part of the merger agreement.
Moreover, closer tabs are kept on potential problems in major areas, such as data processing, that could arise in the time between the announcement and closing of a deal and prevent two banks from suddenly developing cold feet on the way to the altar.
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