In the wake of several huge mergers of equals last year, top executives from Fifth Third Bancorp, Zions Bancorp., and Firstar Corp. said last week that they would be wary of such an arrangement.
Their remarks came during the Bank and Financial Analyst Association's annual symposium in New York, in a session titled "Regional Bank Consolidation: Does It Still Make Sense?"
One participant, Fifth Third chief financial officer Neil Arnold, said mergers of equals simply cannot be done successfully.
"If you have something valuable, why would you want to compromise it?" Mr. Arnold said in an interview after the session. "Mergers of equals are too big of a risk."
Firstar chief executive David Moffett said he agreed with Mr. Arnold, as did Dale M. Gibbons, chief financial officer at Zions.
"With maybe a couple of notable exceptions, a merger of equals damages franchise value and tends to obscure who is in charge," Mr. Gibbons said after the session.
Opposition to mergers of equals is common among certain types of bankers, said bank analyst Michael Granger of Fox-Pitt, Kelton.
"Companies that are independent, have valuable franchises, and have performed well are not willing to give up control of their companies," he said.
Indeed, analysts maintain that Fifth Third and Firstar considered merging in the past but could not agree on who would run the combined entity.
"They have looked at each other for years," said bank bond analyst Katharine Rossow of Chase Securities Inc.
Some mergers of equals-in which two banks consolidate, and no premium is paid-have left a bad taste in the mouths of bankers, analysts and investors.
With the exception of Chase Manhattan Corp.'s marriage to Chemical Banking Corp. in 1995, mergers of equals have a spotty track record. There were setbacks after KeyCorp's merger with Society Corp. in 1994; Comerica's with Manufacturers Bank NA, Detroit, in 1992; and Chemical's deal with Manufacturers Hanover in 1991.
The biggest problem is consolidating the cultures and managements of the two companies, Mr. Granger said.
Control "gets diluted when you have two managements struggling over the direction of the company," he said. "If you do not have a clear management process, there is potential for the deal not to work correctly."
Investors also can be disappointed by a merger of equals because there is no premium. Ordinarily the stock of an acquisition target rises the day a deal is announced. But shares of merging equals get no such boost.
Nevertheless, unfavorable views about mergers of equals have dissipated somewhat in recent months.
Last year NationsBank announced a merger of equals with BankAmerica Corp. and Bank One proposed a similar plan with First Chicago NBD Corp.
"Premiums were getting so high that they didn't work out financially, so people are looking to put deals together at much lower premiums which are more acceptable to shareholders," Mr. Granger said.
But others argue that the new BankAmerica and Bank One were not created by mergers of true equals, because in each case the leadership of the resulting companies is decisively skewed to one of the parties.
"It is very clear-cut who is running the new BankAmerica and Bank One," said Henry C. Dickson, a bank analyst at Salomon Smith Barney.
