In its second deal in as many months, Marshall & Ilsley Corp. of Milwaukee has agreed to buy Trustcorp Financial Inc. of St. Louis for roughly $181 million in a cash-and-stock transaction.
The acquisition will expand M&I's branch network in the St. Louis area as it simultaneously works to close another $700 million cash-and-stock deal it reached last month with Gold Banc Corp. of Leawood, Kan.
M&I will fold Trustcorp's Missouri State Bank and Trust, which has $711 million of assets and seven branches, into its own Southwest Bank, which has eight branches in Missouri and one in Illinois. The deal is expected to close in the second quarter, after regulatory approvals and a shareholder vote.
The price - at 3.6 times book - raised analysts' eyebrows, but M&I forecast the deal would cost 1 cent per share of 2006 earnings.
"I don't quibble with the fact they're building a good company, but I don't see how people can make money on the stock," said Punk, Ziegel & Co. analyst Richard Bove, adding that M&I will have to issue more stock under the terms of both of its pending acquisition deals.
He reiterated his "market perform" rating after the M&I-Trustcorp deal was announced.
Anthony R. Davis, an analyst for BankAtlantic Bancorp Inc.'s Ryan Beck & Co. Inc., wrote that "M&I is paying a full price for Trustcorp, but it can afford to, given the small size of the transaction." Ryan Beck has an "outperform" rating on M&I's stock.
M&I's Southwest Bank is No. 6 in deposit market share in the St. Louis market, according to Federal Deposit Insurance Corp. data. After the merger it would leapfrog First Banks Inc. of Hazelwood, Mo., for fifth place.
"We're not reacting to pressure when we do a deal," said M&I's chief financial officer, John Presley, in an interview.
Within an hour of M&I's announcement a competitor, National City Corp. of Cleveland, said it had reached an agreement to buy Forbes First Financial Corp. of St. Louis for an undisclosed amount of cash. Forbes First is the parent of Pioneer Bank and Trust Co., which has $500 million of assets and 11 branches.
National City, which has $151.7 billion of assets, expects to close the deal in the second quarter as well and would remain in seventh place for market share in St. Louis.
In the race for more of the market, National City plans to add at least eight more branches by the end of 2007. M&I is open to buying another community bank to help it grow there, Mr. Presley said.
In an interview Wednesday, David Daberko, National City's chairman and CEO, tipped his acquisition strategy by saying, "We still don't have a presence on the Illinois side of the Mississippi."
His company entered the St. Louis market in 2004 by buying Allegiant Bancorp for $475 million. M&I arrived two years earlier by buying Southwest.
Pioneer and Missouri State Bank have both grown substantially in the last five years. Pioneer nearly tripled its deposits, as Missouri State's almost doubled, while consolidation eliminated seven of the 145 institutions in the St. Louis market.
Thomas H. Brouster Sr., the chairman and CEO of Forbes First, will become the chairman of National City's Missouri banking market. Missouri State's chairman and CEO, Jim Saitz, will stay on as a consultant to ensure the transition goes smoothly.
In interviews with The St. Louis Post-Dispatch, executives at both banks cited the high cost of technology investments as one reason for selling out.
Shares of M&I fell 0.72%, while National City stock gained 0.15%.
