Money-Center Partners Kept Their Lips Zipped

The biggest surprise about the planned merger of Chemical Banking Corp. and Manufacturers Hanover Corp. is that Monday's announcement came as any surprise at all.

For months, the two money-center banks had been the focus of recurrent rumors and speculation about intracity bank mergers in New York.

Attention Dissipated Scrutiny

Ironically, the rumors wound up serving as cloud cover for the real negotiations, said an investment banker who worked on the deal.

The banks and their advisers are also credited with doing a good job of keeping a lid on the leaks that often accompany merger talks.

As evidence of the banks' ability to keep the talks secret, no merger premium appeared in either stock before the announcement, said Judah Kraushaar, a bank analyst at Merrill Lynch & Co.

Indeed, both banks seemed to be playing up the idea of joint ventures, rather than an outright merger, Mr. Kraushaar said.

Share Prices Not Prophetical

Chemical's share price closed Friday at $23.75, virtually unchanged from a month before, while Hanover's stock was trading lower, indicating the market had no indication that a deal was imminent.

"We didn't hear any noise about this at all," said one arbitrager.

"People expected [the merger], but it still came as a surprise, if that makes any sense," another market participant said.

One reason for the surprise at the merger announcement is that "no one really believed that New York City banks would be able to suppress their egos and actually do it," this source added.

Who Would Be |Big Boy'?

"All of the top bank CEOs in New York know each other well, and to make one of these deals happen, someone has to be the big boy," said one investment banker.

A source familiar with the deal said Hanover chairman John McGillicuddy initiated the first meeting, in mid-May, with Walter Shipley, Chemical's chairman.

But one-on-one talks between the top officials soon expanded to include other executives and investment bankers, who conducted extensive due diligence reviews.

Directors in on Secret

In addition, members of the boards of directors at both banks knew about the merger negotiations well before Sunday, when both boards approved the deal.

Given all the potential sources of leaks, it's "astounding" that the deal was kept secret, said an investment banker at Morgan Stanley & Co., which was Hanover's merger adviser.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.