Efforts by shareholder Franklin Mutual Advisers to force Commercial Federal Corp. into a sale are starting to gain momentum.

An executive from John Hancock Advisers, Inc., the second-largest institutional shareholder in the Omaha, Neb.-based company, said Friday that he believed a merger may be a sensible strategy.

James K. Schmidt, who leads John Hancock's financial institutions group, said his fund would like to discuss the situation with $12.7 billion-asset Commercial Federal and with Franklin Mutual, the banking company's largest shareholder.

John Hancock would like to receive a premium for its 4.16% stake in Commercial Federal, Mr. Schmidt said. A sale could bring shareholders up to $45 per share a premium over its one-year trading range of $22 to $24, he estimated. Commercial Federal shares closed Friday at $24.50, up 50 cents.

"The arithmetic may be the strongest part of their argument," said Mr. Schmidt. "We think the mutual shares proposal is sensible and has a lot of credibility."

Franklin Mutual, a 7.7% stakeholder, began putting pressure this month on Commercial Federal to do a deal. In a 13-D filing with the Securities and Exchange Commission, Franklin said shareholders would be better served if the company was acquired.

Investors and analysts agree that Commercial Federal has been struggling financially for about a year as it has absorbed three large purchases. Commercial Federal has missed analysts' consensus estimates in three of the last four quarters. The company came up 5 cents per share short for the second quarter, reporting earnings of 49 cents per share and net income of $29.9 million.

John Hancock's Mr. Schmidt blamed Commercial Federal's acquisition strategy for its current predicament. "We feel the company has been too acquisitive," he said. "They're a thrift version of Union Planters," the Memphis, Tenn.-based bank that has stumbled in the course of pursuing 14 deals since 1998.

Finding a buyer for Commercial Federal may be a challenge, however. The company has 253 branches in eight midwestern states and Arizona, but most of the locations are in slow-growth rural markets, Mr. Schmidt said.

Banking analysts list several possible bidders for Commercial Federal, including Minneapolis-based U.S. Bancorp, Wells Fargo & Co. in San Francisco, Charter One Financial of Cleveland, and Houston's Bank United Corp. Foreign banks with a large midwestern presence, such as ABN Amro NV and Bank of Montreal, may also be interested.

But the analysts are quick to point out that neither U.S. Bancorp nor Wells Fargo are known for acquiring thrifts. Charter One, meanwhile, is caught up with its pending deal for St. Paul Bancorp in Chicago. And a merger of equals combining Commercial Federal with Bank United would be a stretch for the Houston-based thrift, analysts said.

"Who's going to buy it?" asked Joseph Roberto of Keefe, Bruyette & Woods Inc. in New York. "Franklin's probably asking that themselves."

"I think it's unlikely that it gets acquired at all," said David B. Moore, an analyst with Podesta & Co. in Chicago.

Those on Wall Street who follow Commercial Federal predicted that if a deal is done, it would be at a lower price than the institutional investors are expecting. Analysts said Commercial Federal is more likely to sell for about $33 a share.

Commercial Federal's board may also be an impediment to a sale. William A. Fitzgerald, the company's chief executive officer, said the board voted in April to remain independent.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.