St. Louis was still bank merger central Tuesday as Magna Group Inc., a company widely regarded as an acquisition target, said it agreed to buy an Iowa holding company for $216 million.
Just four days prior, before the Labor Day weekend, NationsBank Corp. announced its $9.5 billion megadeal with St. Louis-based Boatmen's Bancshares, Magna Group's biggest regional rival.
Apparently intent on defining its future as an acquirer, Magna agreed to pay cash and stock equal to 1.66 times book value for Homeland Bankshares in Waterloo, Iowa.
For what analysts regarded as an inexpensive price, Magna would gain entry into its third state - it has 106 branches in Missouri and Illinois - while boosting assets by $1.2 billion, to $6.6 billion.
Boatmen's, by contrast, spans nine states with $41 billion of assets, and stands to become part of a 16-state NationsBank colossus with more than $230 billion of assets.
Analysts said a bulkier Magna may have an easier time remaining independent.
At the same time, its purchase of Homeland is seen as part of a wave of consolidation that could accelerate as midwestern bankers prepare for NationsBank's arrival.
"There is still plenty of room for major consolidation," said Joseph Stieven, an analyst with Stifel, Nicolaus & Co. in St. Louis, who expects a pickup in activity as the year wears on.
"Everyone was surprised by the calm during the first half of 1996," he said. "Boatmen's could be the spark that ignites the next phase of acquisitions."
Magna said Homeland Bankshares, which has 33 branches, would have a positive effect on earnings within the first year, due to an $8 million cost reduction plan.
Magna Group chairman and chief executive officer G. Thomas Andes said 65% of the savings will come from job reductions, but he declined to say how many of Homeland's 650 jobs would be eliminated.
Other cuts would be realized by consolidating operations and data processing and by merging Homeland's one thrift and four bank charters.
Magna said it plans to merge the Iowa operation into its single, multistate charter sometime after September 1997 when an Iowa law changes to permit such a move.
Erl Schmiesing, chairman and chief executive of Homeland, is to step aside while taking a seat on Magna's board. Magna officials said they will later name an executive to run the Iowa operations.
Magna said it would issue five million shares of stock and pay $92 million in cash in the deal, which is expected to close by the first quarter next year.
Observers said Homeland agreed to the buyout because it recognized it was in a lower tier of a market dominated by larger out-of- state companies including Norwest Corp. and First Bank System Inc. of Minneapolis, Firstar Corp. of Milwaukee, and Boatmen's and Mercantile Bancorp. of St. Louis.
"Homeland is like a lot of $1 billion and $2 billion holding companies," said Chicago Corp.'s John J. Harris, the investment banker representing Homeland in its Magna deal. "If you're a thoughtful company, you're thinking: 'how do I fit into the landscape over the next few years?'"
Magna Group wants to compete primarily in Iowa's consumer and small- business markets, Mr. Andes said, adding that he is interested in further acquisitions. He said he was also drawn to Homeland's student loan company, which he said he would like to expand.
He said there were no other bidders, but the Iowa company had been in discussions with other banks before beginning negotiations with Magna earlier this year.
While the St. Louis-based regional wants to survive on its own, its acquisition of smaller players such as Homeland "doesn't change the attractiveness of Magna as an acquisition candidate," said James Weber, an analyst with A.G. Edwards in St. Louis.
Magna's share price was down 6.25 cents Tuesday, to $24.8125.
