The year-and-a-half extension of its chairman's contract means Mellon Bank Corp. probably won't be sold anytime soon, analysts say.
Frank V. Cahouet, 63, was due to retire May 31, 1997. He is now to remain chairman, chief executive, and president of the Pittsburgh-based bank until December 1998.
Analysts said Mr. Cahouet has been up-front about his determination to keep the $40 billion-asset bank independent. If the board had been serious about entertaining a merger, he would not have been tapped for the extra time, they added.
"Frank Cahouet wants to keep this bank independent, that's for sure. This just confirms they are not sellers," said Denis Laplante with Fox- Pitt, Kelton.
Mellon's stock price has been a major beneficiary of takeover speculation. The bank was named as a possible partner for Bank of Boston Corp. earlier this year, but the deal went nowhere. Merger gossip has boosted Mellon's share price about 50% since January, Mr. Laplante said.
Mellon shares closed Wednesday at $46.50, up 50 cents.
In light of the industry's recent spate of mergers, it made sense to prolong Mr. Cahouet's tenure for several reasons, analysts said.
One is the lack of a defined succession plan. Mellon has several vice chairman running different sections of the bank, but none stand out as clear heirs.
Another issue for Mellon is its bloated capitalization. With a ratio of common equity to assets of 9.1% - more than 10% if preferred is included - the bank has at least $1 billion in extra capital that needs to be put to work.
Mellon can buy back its stock starting in August 1996 (it is currently restrained because of the Dreyfus Corp. acquisition) and will be able to do so only if it does not use the capital in a merger.
Meanwhile, the bank is still assimilating its Dreyfus and Boston Co. acquisitions, and is in no rush to do another deal, especially at today's premiums. Keeping Mr. Cahouet in control practically guarantees a stable environment in which to put nonbanking operations in order.
According to Livia Asher of Merrill Lynch, Mr. Cahouet earned a fair amount of ill will for buying Dreyfus. The deal was highly dilutive to Mellon's shareholders. "It was a bad time in the market," she said.
"I don't see him going out and doing a dilutive transaction" again, she said, "nor do I see him selling the company."
Another issue is the makeup of the board itself. It includes several Mellon family members, who are not anxious to see the bank sold or its name changed.
Finally, analysts said the board is happy with Mr. Cahouet's accomplishments, and the current volatile atmosphere in the industry makes them even more anxious to keep a reliable, familiar hand on the tiller.
"Mellon's fundamentals are good enough and the board has confidence in Frank," said Michael L. Mayo of Lehman Brothers. "I think this says that the board believes management can achieve its full franchise value of $60 per share if they stay in control a little bit longer."