When it comes to bank mergers and acquisitions, Massachusetts has produced much talk with little action. But that is about to change, analysts say, thanks in part to Shawmut National Corp.'s successful bid last month for Peoples Bancorp of Worcester.

Shawmut agreed to pay $180 million in common stock -- or 1.76 times book value -- for Peoples, a healthy, thrift holding company with $913 million of assets.

The price, analysts said, will be one of the highest ever paid for a savings bank and is likely to jump-start M&A activity in a region where it has been slow to develop.

A Rare Premium

"It's the first [New England] deal to be done at a premium and that sets the stage for transactions," said Stanley Wells, an executive vice president based in the Hartford, Conn., office of Keefe, Bruyette, & Woods Inc. "When you see that kind of premium being paid, you think twice before going on as usual."

Peoples Bancorp, with a ratio of nonperforming assets to total assets of 50 basis points, was one of the region's first truly healthy banks to succumb to a takeover. "We were not in the business of selling this bank," Woodbury Titcomb, Peoples' president and chief executive, said in a telephone interview shortly after the deal was announced. "The proposal [Shawmut] made to us was out of the blue."

Low Prices in Weak Economy

Indeed, before the Peoples-Shawmut agreement, the few takeovers that occurred in the Bay State were limited largely to banks and thrifts that were recovering from the downturn in New England. The prices these institutions fetched reflected their weak condition.

Bank of Boston Corp., for example, picked up Multibank Financial Corp., in Dedham, Mass., for 1.23 times book.

Similarly, Citizens Financial Group, the Providence, R.I., bank company, later this year will pay just 1. 17 times book for Boston Five Bancorp.

According to SNL Securities, only seven acquisitions of Massachusetts banks and thrifts have been announced since the beginning of January 1992, with an average purchase price to book of 1.25.

But with the economy on the mend, and a diminishing number of bank failures on the horizon, deals for healthy banks and thrifts are expected to pick up.

"The fact that the financial condition of the industry has not only stabilized but has become vibrant has made the climate right for considering transactions," said Richard Driscoll, president of the Massachusetts Bankers Association.

His state's banks will be driven by a host of motives, from achieving efficiencies, to gaining deposit share, to entering new markets, he said.

New England's three largest bank companies -- Bank of Boston, Fleet Financial Group, and Shawmut -- have for the most part put their credit problems behind them and are betting that the smaller institutions they would like to own have done so too.

Loan Provisions Drop

The region's commercial banks posted loan-loss provisions totaling $155 million in the first quarter of 1993, down from a peak of $600 million in the third quarter of 1991., according to the Federal Reserve Bank of Boston.

"People have become more confident about buying banks." said Jeffrey L. Cohn, an analyst at H.C. Wainwright & Co. in Boston. "Most banks have stabilized their problems and know that anyone they look at as a partner has been through a problem identification program too."

That means that acquirers will probably be more willing to pay the beefed-up prices that the smaller institutions now feel they are worth. But, analysts warn, sellers should not expect to draw the same kind of hefty premium that Peoples fetched from Shawmut.

"The negative side of this deal is that it can prove to be an unrealistic benchmark for other banks," said Mr. Wells.

There are some obvious reasons why Shawmut, a $24 billion-asset company with dual headquarters in Hartford and Boston, agreed to pay so much for Peoples.

In acquiring the thrift, it commands on a pro forma basis 17% of the retail market in Worcester. That gives it the largest share of deposits in New England's second-largest city.

Costs Can Be Saved

As an in-market merger, it also presents Shawmut with cost-saving opportunities. The large bank, which has $28.6 billion of assets, anticipates that it will be able to shave People's operating costs by 65%.

There are also some less obvious strategic factors that made Peoples so appealing to New England's third-largest bank, analysts said. The transaction is likely to throw a wrench into plans by Shawmut's rivals to grow in Worcester County -- the fourth largest in the state.

Bankworcester Corp., Peoples' biggest competitor with 21% of deposits in the county, has reportedly been on the auction block for months. But the Peoples-Shawmut alliance will make it more difficult for one of Shawmut's big competitors to grab it.

Specter of Antitrust

That's because another incursion by a large bank could raise antitrust problems. For example, if Fleet Financial Group, which has a 7.27% share of the Worcester County deposit market, were to buy BankWorcester, 47% of all bank business in Worcester County would be controlled by three banks.

According to Mr. Wells, that would not be easily tolerated by regulators.

"Thanks to Shawmut, the probability of BankWorcester being an in-market deal can be questioned," the analyst said.

The Peoples deal makes sense to Shawmut for other reasons, as well. It lessens the impact of Bank of Boston's pending acquisition of Multibank Financial Corp. Multibank, which is based in Boston, owns Worcester County's Mechanics Bank, which will add 10 branches to Bank of Boston's seven-branch network in Worcester.

Dominance Secured

By acquiring Peoples, Shawmut will win 48 branches in the county, ensuring that it will remain a far bigger player than its Boston rival.

Shawmut also feels that it must grow to protect itself from acquirers. according to some observers.

"They seem to be scared to death that unless they become a $100 billion bank in three years they are going to go down the tubes," said Robert Wilmers, the president and chief executive of First Empire State Corp., in Buffalo.

Meanwhile, followers of the New England scene said consolidation in the region may create variations on the theme of big banks snapping up smaller ones.

Many of the small, independent banks and thrifts that dot the Massachusetts landscape may soon decide to ally with their neighbors as an alternative to selling out to a giant, some analysts say.

Solid Competitors

"There is a very real opportunity to create a holding company that would be an alternative to Bank of Boston, Fleet, Shawmut, or whoever," Mr. Wells said.

"Two banks that could come together to create a $4 million company would fill a void in the marketplace and be better positioned to compete against a major

bank down the road."

Expansive banks from outside New England are also expected to scour the region for possible deals. California's BankAmerica Corp. demonstrated its interest in entering the market in 1991, when it unsuccessfully bid for the failed Bank of New England franchise.

Out-of-state banks can enter Massachusetts as long as their home states allow for reciprocity.

"It would probably be a good thing to have new players and new capital," Mr. Driscoll said. "We would be glad to have strong regional banks in New England."

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