What started out as truly huge four months ago is merely very, very big now.
On April 6, Citicorp and Travelers Group announced they would merge in a deal worth $72 billion at the time. By Monday afternoon that deal was worth $50.8 billion, a figure reflecting the fall in share prices at both companies.
But the decline in deal value may be noteworthy only for its size. The deal is not jeopardized, bank officials and dealmakers say, because it-like all of the four biggest merger agreements struck before the stock market meltdown-is structured as a merger of equals.
In other words, neither company's shareholders would be paid more than the market price for their shares, so there is no need to delay the deal to see if stock prices rise, or to increase the number of shares being offered.
The market's decline, however, may create pressure to restructure some smaller deals in which shareholders in the target are expecting a premium over the market value of their shares.
Lower prices for stocks-the currency used to finance most big mergers- also could slow future dealmaking.
"I suspect that people in the M&A business are taking a pause to see what's happened to their gunpowder," said C. Stanley Bailey, former head of M&A at Amsouth Bancorp. and now chairman and chief executive of Superior Federal Bank in Fort Smith, Ark.
Spokesmen for NationsBank Corp., Norwest Corp., and Banc One Corp. said the recent drops in their share prices will not in any way affect their planned mergers with BankAmerica Corp., Wells Fargo & Co., and First Chicago NBD Corp., respectively.
But in deals worth $10 billion or less, investors in the selling companies are expecting to receive substantial premiums for their shares. And since the value of those premiums is directly related to the share values of the acquirers, would-be buyers could be facing pressure to increase their offers or wait until their stocks recover.
One deal that has faced pressure virtually since it was announced has been Astoria Financial Corp.'s proposed $1.3 billion purchase of Long Island Bancorp.
Astoria shares have lost 39% of their value since the deal was announced in April, but the terms effectively offer Long Island and its shareholders no way out.
The agreement is protected by what dealmakers call a "double trigger," as is often the case in multibillion-dollar mergers. The seller has no out unless Astoria's shares fall below a certain price and by a greater percentage than those of a group of selected thrifts.
And even if both events occur, Astoria has the right to increase the size of its offer to preserve the deal.
According to Astoria spokesman Peter Cunningham, Astoria has fallen less than the group of thrifts, and the merger, which shareholders of both companies approved Aug. 19, is expected to close Sept. 30.
"Double triggers keep the world rational," observed Superior Federal's Mr. Bailey.
Even when deals are protected by a "single trigger" or no trigger at all, it's unlikely that selling companies will walk away unless they have a better option already arranged, dealmakers say.
Abandoning a deal also wouldn't sit well in the clubby world of bank CEOs.
"If you violate a single trigger, you can walk but realistically you won't," said Barry P. Taff, partner at the Washington law firm of Silver, Freedman & Taff. "If you walk away, you're used goods and it will be hard to sell to someone else."
But in recent months deals involving banks have been including triggers in their agreements less often.
Neither SunTrust Banks Inc.'s pending acquisition of Crestar Financial Corp. nor Star Banc Corp.'s of Firstar Corp. contain any. "We saw no reason to let the market get in the way of this deal," said SunTrust spokesman James Armstrong. Star Banc declined to comment.
Since those deals were announced, SunTrust's shares have fallen 35% and Crestar's 22%. Star Banc is off 11%, but Firstar has risen 9.3%.
And though analysts and investment bankers consider it unlikely, the continued fall by SunTrust or Star Banc could cause shareholders at Crestar or Firstar to vote down the proposed mergers.
It's been a while since shareholders at a selling bank canceled a deal because the buyer's share price fell. In January 1995 shareholders at Tampa Banking Co. failed to approved a proposed merger with Amsouth. Executives at the time said the merger was rejected because Amsouth's share price had fallen nearly 10% since the agreement was reached nearly a year earlier.
Amsouth's earnings were diluted by numerous acquisitions in Florida, analysts said, and a bear market for bank stocks in the second half of 1994 didn't help.