National City to Buy Merchants of Indiana
National City Corp., whose advances were spurned earlier this year by Cleveland rival Ameritrust, has struck a deal to acquire Merchants National Corp. in neighboring Indiana.
The merger - a stock swap valued at $603 million - would give National City a major presence in the Hoosier State and boost its overall assets by 25%, to $30 billion. The company would rank as the nation's 21st largest after pending mergers are completed.
The acquisition would dilute National City's per-share 1992 earnings by 7%, estimated Fred Cummings, a banking analyst with McDonald & Co., Cleveland.
National City's stock fell sharply on the news, closing down $3.125 at $36.625. Merchants National common shares rose $9.25, to close at $38.25.
Stretching Its Wings
The interstate deal represents a marked change in strategy for Cleveland-based National City, which earlier this year lost out to Society Corp. in the bidding for Ameritrust Corp.
The company has strenuously promoted the merits of in-market mergers that create substantial cost savings.
National City said it would pay a hefty 1.8 times book value for Merchants National and expects cost savings equal to 15% of Merchant's annual non-interest expense. That compares with 30% savings it envisioned when courting Ameritrust.
The relatively modest cost savings means "the deal really does not add that much financially in the near term," said Mr. Cummings, the analyst.
Under terms of the transaction, National City will trade 1.12 shares of its common stock for each share of Merchants National. The deal is expected to close in the second quarter.
Merchants National has been a lackluster performer this year, posting a 0.68% annualized return on assets and a 11.08% return on equity during the first nine months.
It finished the period with $136 million of problem assets, equal to 3.64% of gross loans.
For National City to meet financial projections on the transaction, it will have to boost Merchants National's return on assets to a hefty 1.1%.
Edward Brandon, chairman and chief executive of National City, expressed confidence that the goal could be met. He said the only way things could go wrong is if the national economy "double dips" into a second recession and loan defaults climb again.
$50 Million Provision
Mr. Brandon said he expected Merchants National to take a portfolio-cleansing special provision of roughly $50 million during the fourth quarter. In addition, National City will take a $20 million restructuring charge.
In its outline of the transaction, National City projected that about 600 jobs at Merchants National would be eliminated, or 17% of its 3,542-person work force.
$30 Million in Savings
Beginning in the first quarter of 1993, National City expects to realize $30 million in annual cost savings from the transaction.
The enlarged National City will control 588 branches throughout Ohio, Kentucky, and Indiana. The company will have roughly $22 billion of trust assets under management, a $1.3 billion credit card portfolio, and a $10.5 billion mortgage servicing portfolio.
PHOTO : Edward Brandon Anticipates 15% in cost savings