Moving to strengthen its position in Illinois, Mercantile Bancorp. of St. Louis said Monday it would acquire Firstbank of Illinois Co., Springfield, for $697 million in stock.

In its 12th acquisition deal in three years, Mercantile is paying 21 times Firstbank's estimated 1998 earnings, or 2.8 times book value, to establish a bridge between its northern and southern Illinois operations.

"It's a great acquisition," said Diana Yates, an analyst at A.G. Edwards in St. Louis. "It fills in central Illinois and should increase (Mercantile's) franchise value."

Mercantile also bolsters its position in several communities on the Illinois side of the St. Louis metropolitan area.

Including Firstbank, $30 billion-asset Mercantile would lock up the No. 1 rank in Illinois deposits outside Chicago. The deposit total would jump to $3.7 billion, from $2 billion. Its 7% share of the "outstate" market would put Mercantile ahead of Banc One Corp. and First of America Bank Corp.

"Mercantile's newly established presence in central Illinois provides a strong platform on which to solidify its position throughout the state," said the St. Louis company's chairman, Thomas H. Jacobsen.

Mercantile has shied away from the Chicago environs.

The addition of $2.2 billion-asset Firstbank would slightly dilute earnings in the year after the merger's anticipated completion in the third quarter. Mercantile said it will take a charge of up to $45 million for merger expenses. It plans to lop off about $15 million, or 25%, of Firstbank's operating costs.

At least six of Firstbank's 48 branches overlap with Mercantile's and therefore could be closed. Nothing was said Monday about how many of Firstbank's 1,000 employees might lose their jobs.

Analysts said the deal price was high but in line with other recent transactions. "It's a full price but less than some of the extravagant prices we've seen lately," said Anthony Polini of Advest Group Inc.

Firstbank was one of the last of the sizable Illinois banks left outside Chicago. It has made several acquisitions of its own in recent years.

The deal was negotiated privately. A competitor expressed surprise, saying Firstbank could have shopped around for a higher price.

"The price was light compared with the last four or five deals" in the Midwest, said James J. Giancola, chief executive officer of $4.5 billion- asset CNB Bancshares, Evansville, Ind. Mr. Giancola said he would have liked a chance to bid. "That deal would have made a lot of sense for us," he said.

Firstbank was motivated to sell by the prospects of slower earnings growth and higher expenses, said Mark H. Ferguson, chairman and chief executive officer. There was no pressing need to sell, he said, but "we never wanted to wait until it was forced upon us."

Mr. Ferguson, who expects to run at least part of Mercantile's Illinois business, defended the decision not to hold an auction. Mercantile had courted Firstbank for years, he said, and was "at the top of our list" of potential buyers.

Mercantile faces an integration task considerably less formidable than it did in its acquisition of $9 billion-asset Roosevelt Financial Group of St. Louis last July. But Firstbank is larger than many of its "fill-in" purchases.

Assuming the Firstbank deal is approved, Mercantile will have added about $20 billion of assets in three years.

The analysts said this merger will not secure Mercantile's fate as an independent company but does indicate that the company's acquisition drive is still on.

"I don't see them doing anything larger than this type of acquisition," said Joseph Roberto, an analyst at Keefe, Bruyette & Woods Inc. As far as staying independent, "we view them as a more likely seller."

Mercantile was advised by UBS Securities, and Firstbank, by PaineWebber Inc.

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