National City Corp. on Tuesday increased its bid to $9.50 for the 12% of National Processing Inc. that it previously sold.
Even with the higher bid, the price would be a bargain for National City, which sold the company for $16.50 a share in 1996.
The Cleveland banking company earlier offered to pay $7.50 to $8.50 a share, which National City had said translated to a premium of up to 43%.
Some analysts said National City may have to sweeten its bid further.
"I wouldn't think National Processing would be satisfied with that offer," said Brock Vandervliet of Keefe, Bruyette & Woods Inc. in New York.
"It is possible that National City may up the bid or another buyer could surface," said the analyst, who calculated that the processing company could fetch $12 to $14 per share.
National City, which has assets of $85 billion, said in a prepared statement that its $9.50 offer is "an attractive premium of 24% over National Processing's Monday closing price of $7.69 and a 51% premium over the company's 30-day average closing price of $6.28."
If its $9.50 offer is not accepted, the Cleveland bank said it would take "its cash proposal to the National Processing shareholders for their consideration."
Meanwhile, in Tuesday's market shares of National Processing jumped 30%, to $10, suggesting to some observers that $9.50 is too low for one of the nation's largest merchant processors.
"National City is likely to come back with a higher offer," said one investor, who asked not to be identified.
"There is already a precedent."
Last year the former BankAmerica bought back BA Merchant Services-a company similar to National Processing-for 23 times its book value. Using that multiple and National Processing's 2000 earnings-per-share estimate suggests an offer of more than $17 a share.
BankAmerica Corp. had raised its offer after several shareholders challenged the initial offer in lawsuits.
National City said it approached National Processing in March to discuss plans to acquire the remaining 12% of its stock.
National Processing responded by setting up a special committee and retaining financial and legal advisers to consider the proposal.
Analyst Diana Yates of A.G. Edwards & Sons in St. Louis said it was "no surprise" that National City was making the move, noting that National Processing has recently revamped its operations.
National Processing did not return phone calls Tuesday.