How the Deal Was Struck
Banking's largest merger started to come together two months ago when Walter V. Shipley and John F. McGillicuddy met alone in a Manhattan hotel room.
After years of flirting with the idea, the chief executives decided they could no longer ignore the compelling reasons for their chronically underperforming institutions to join their fortunes.
Deciding Who's Boss
And the pair dealt head-on with what is usually the most thorny question when big banks court each other: Who gets to be the boss?
Mr. Shipley, the 55-year-old chief executive of Chemical Banking Corp., came out the big winner. Mr. McGillicuddy's 50-year-old heir apparent at Manufacturers Hanover Corp., Thomas S. Johnson, was the big loser.
Mr. McGillicuddy, 60, will be chief executive of the merged company until he retires at the end of 1993, when Mr. Shipley will take the helm.
Johnson Is Odd Man Out
Mr. Johnson, the odd man out, will leave Hanover this month.
The chief executives won't say who approached whom. An investment banker at Morgan Stanley & Co. who worked on the deal said Mr. McGillicuddy approached Mr. Shipley. But even if that is true, it may obscure a mutual courtship that had been in the works for some time.
"Walt and I first talked about this a couple of years ago," Mr. McGillicuddy told a press conference Monday.
Indeed, both executives indicated that, when they sat down to talk in May, they had done at least a year of research on the other. "We each had done our own estimates on the other's exposures and opportunities and gleaned all we could from public documents on the other's reserves, capital, and management structure," Mr. Shipley said.
Irving Deal an Influence
Both said Bank of New York Co.'s 1989 takeover of Irving Bank Corp. was particularly important in deciding whether it made sense to find a merger partner.
"It had everyone focused on what was going on around them," Mr. Shipley said.
Furthermore, both had moved far down on the list of the world's largest banks, and the prospect of mergers at large superregional banks, like the one proposed by NCNB Corp. with C&S/Sovran Corp., foretold further erosion of their positions.
"It basically makes this institution very, very competitive," Mr. Shipley said - "much more competitive than we were before."
CEOs Are Longtime Friends
At the press conference, the two executives focused on their friendship, pointing out that they met 20 years ago in Kansas City, Mo., while on business trips for their respective organizations. "We had dinner at a steakhouse with associates," Mr. Shipley said.
Market watchers have been speculating about a merger between the two banks for years. Still, at least lately, most believed that it would be Mr. Johnson who would end up on top. Most believed he was a stronger manager than Mr. Shipley.
Mr. Johnson left Chemical's presidency at the end of 1989 to become president at Hanover and the anointed successor to Mr. McGillicuddy.
In a press release, he called the merger an "exciting development" but said its outcome would make his goal of leading a major financial institution "much more remote." Mr. Johnson did not respond to requests for an interview.
Boss' Relations with Johnson
Regarding Mr. Johnson, Mr. McGillicuddy would say only: "He and I get along extremely well, which is not to say we're not capable of having disagreements...."
A source close to the deal said that the merger could not have occurred without Mr. Shipley's being guaranteed a top spot. That meant Mr. Johnson would have to go.
Although the executives and sources familiar with the deal said the prospect of a merger between C&S/Sovran and NCNB didn't affect the talks, they said a clear sense emerged that the two banks had lost some influence nationally and internationally and that a merger would help restore their clout.
The Morgan Stanley banker said it was unclear what caused the deal to happen now. However, he said, it helped that both banks seem more in control of their loan problems.
PHOTO : Thomas S. Johnson Squeezed out
PHOTO : TYING THE KNOT: John F. McGillicuddy, left, chairman of Hanover, and Walter V. Shipley, chairman of Chemical, at press conference.