Call it the rumor that won't die.
A report that Bank of New York Co. was about to acquire Mellon Bank Corp. roiled the stock market Tuesday. It was at least the third time in recent weeks such a report has surfaced.
Mellon's stock rocketed $8.3125 a share, to $66, in half an hour after Reuters reported that the two banking giants were close to agreeing to merge. Trading of Mellon's shares on the New York Stock Exchange was halted for nearly two hours as specialists scrambled to find shares to meet buy orders.
After trading reopened, Mellon shares fell back to earth, closing up $2.375, at $60.125. And after the close Mellon issued a statement asking the Big Board to investigate the rumor's source.
Officials at both banking companies declined to comment, and Mellon's merger advisers insisted there was nothing to the report.
A Mellon source observed that a deal Tuesday was unlikely because Mellon chairman, president, and chief executive Frank V. Cahouet was returning from a trip to Japan, where Monday he announced an alliance with Bank of Tokyo-Mitsubishi.
Nevertheless, Wall Street continues to want this merger.
A Mellon-Bank of New York deal would likely be the most expensive U.S. bank merger ever, because Mellon's market value is more than $15 billion. Analysts speculated that the company, which has a big asset management business, could fetch $81 per share, or a 35% premium.
Both Mellon and Bank of New York are dominant players in the trust and custody business, and both are about to undergo major changes in top management.
Thomas A. Renyi is scheduled to replace longtime Bank of New York chairman J. Carter Bacot next month, and Mellon's Mr. Cahouet, 65, recently ended much speculation about a successor by naming one-55-year-old Martin G. McGuinn.
Last year Bank of New York tried to double its stake in State Street Corp., the other major trust and securities processing bank, in what appeared to be a move for eventual control.
Negotiations between Bank of New York and Mellon reached advanced stages in November, people familiar with the banks say, but ultimately collapsed over who would work where at the combined bank.
But despite the breakdown, Bank of New York sources say talks have not ceased completely.