Integra Financial Corp. said Thursday it has agreed to buy Pittsburgh rival Equimark Corp. in a stock swap valued at $282.5 million, or a hefty 2.1 times book value.
The addition of Equimark's $2.8 billion in assets will catapult Integra into the ranks of the nation's top 50 banking companies. The $13.4 billion in combined assets would have ranked it 44th at yearend, up from 62d.
In addition, Intergra will pass Reading-based Meridian Bancorp as Pennsylvania's fourth-largest bank company.
Bad Loans, Thin Capital
The deal marks the end of a rocky road for Equimark, long in the shadows of larger Pittsburgh competitors Mellon Bank Corp. and PNC Financial Corp. Bad loans and thin capital have led to several management shakeups and brought the company under regulatory scrutiny several times.
Recapitalization moves - including a 1982 stakeout investment by Chase Manhattan Corp. and the 1984 purchase of the bank by a group of investors led by Pittsburgh attorney and later Equimark chairman Alan S. Fellheimer - all ended with the bank needing more money. Mr. Fellheimer resigned as Equimark chairman in September 1990 amid heavy losses.
It was yet another attempt to bring in capital that led to Thursday's merger announcement.
In February, Equimark raised $52 million, double its goal, in a rights offering that let shareholders buy 1.25 shares for each share they already owned at a price of $2. The stock then traded around $3.25 per share.
A Risky Credit Profile
The successful offering bolstered Equimark's capital position and got it new attention on Wall Street. It also led to discussions of a merger, Integra chairman and chief executive officer William F. Roemer and Gary W. Fiedler, his counterpart at Equimark, said in interviews in New York.
Mr. Roemer said Integra had been approached more than two years ago by former Equimark executives about joining forces, but Integra felt then that "the credit profile of the bank carried too much risk despite all the other advantages."
When Mr. Fiedler became Equimark chairman in November 1990, Mr. Roemer said he felt obliged to tell the new bank chief of the previous contact. The two executives, who once worked together at Mellon, agreed to talk again when conditions changed.
The definitive agreement calls for Integra to exchange 0.20 common share for each Equimark common share outstanding. Based on Integra's closing share price Thursday of $36.125, the merger price is $7.23 per Equimark share.
The transaction is structured as a fixed exchange ratio with no collars involved that could change the number of Integra shares issued. The deal is being accounted for as a pooling of interests.
News of the merger bolstered Equimark shares and weakened those of Integra. Equimark rose $1.125, or 20%, to $6.625 on the New York Stock Exchange with more than two million shares traded. Meanwhile, Integra's shares tumbled $2.375, or 6%, to $36.125 in over-the-counter activity.
The Laurence and Preston Tisch families hold 20.9% of Equimark's stock, a large chunk of it obtained in the rights offering. Laurence Tisch is chairman of CBS Inc. and Preston Tisch is a former postmaster general who owns a large stake in the New York Giants football team.
|Price Is Certainly Right'
Banking analysts were upbeat about the deal, but some said they had hoped Equimark would remain independent longer following its recovery this year from a period of huge losses, drastic restructuring, and management turnover.
"Holding on for the fruits of the turnaround would have been nice, but the price is certainly right for Equimark and especially for shareholders who participated in the rights offering several months back at $2 per share," said Frank J. Barkocy of Advest Inc.
"I don't see this deal as overpriced," said Anthony Davis, bank analyst at Wheat First Securities. "In taking down Integra's stock, the market is disappointed Integra itself isn't in play. Anytime you can eliminate a big competitor and go from 12% to 20% market share for the price they're paying, it's no bad deal."
Integra Name to Prevail
The combined entity will retain the Integra name and management, with Mr. Fiedler leaving after the merger is completed. "I don't know of very many banks that need two CEOs," he said.
Also leaving is Joseph J. Whiteside, executive vice president and chief financial officer. Another top manager, Richard L. Stover, executive vice president and chief credit officer, is staying on.
Mr. Fiedler said he had "no plans for the future right now" and that he "expects to be very busy for the rest of the year" putting the transaction together.
Prior to joining Equimark, Mr. Fiedler was chairman and chief executive officer of Hogan Systems Inc., Dallas, a supplier of technology services to banks. Before that, he held management positions with First Interstate Bancorp, Wells Fargo & Co., and Mellon.
Mr. Roemer said the banks will strive to close the deal by yearend.
Integra was formed Jan. 26, 1989, by the merger of Pennbancorp and Union National Corp. On June 30, it had assets of $10.5 billion.
The Integra chairman said the biggest benefit of the merger would be a much stronger position for the combined entity in the Pittsburgh area. "We have a lot of offices in less desirable locations, while Equimark has a strong network in place." he said.
As evidence of that, Mr. Roemer said Integra may close 25 branch offices in Pittsburgh in post-merger economies, and 20 of those branches will be its own, while only five Equimark branches are located near superior Integra facilities.
He said Integra projects savings equal to 35% of Equimark's noninterest expenses. First-year expense reduction would total $10 million, and reductions equal to $36 million would be fully phased in during the second year.
The staff reductions will involve projected layoffs of 485 bank personnel, about 9% of their combined staffs. The largest area for staff reductions will be in administrative areas, where a loss of 275 jobs is projected, while 130 branch office jobs and 80 jobs in data processing and operations will be lost.
Morgan Stanley & Co. advised Integra on the deal, while Keefe, Bruyette & Woods Inc. advised Equimark.Partners at a Glance Integra Equimark Financial Corp.Assets,in billions $10.5 $2.8Deposits,in billions $8.2 $2.5Headquarters PittsburghSubsidiarybanks 4 1Offices 233 53Shareholderequity, $605 $138in millionsReturn onequity(*) 15.15% 14.84%Return onasset(*) 0.96% 0.56%(*) Second quarter