While the rest of the market soared Tuesday, shares of NationsBank Corp. and Barnett Banks Inc. slipped in reaction to the banks' merger agreement.
Investors were faced by a stream of bulletins from Wall Street. Analysts were divided on how soon the deal would pay off for investors, but most lowered their 1998 earnings estimates for NationsBank, which is paying a record $15.5 billion for Barnett's big Florida franchise.
"We think NationsBank paid too much," said Edward R. Najarian, Wheat First Butcher Singer, Richmond, Va., who cut his rating on NationsBank to "outperform" from "buy."
NationsBank, which agreed to pay 4.1 times Barnett's book value, is projecting 55% in expense savings from the merger. But Mr. Najarian said achieving those results "may prove difficult without some modest revenue loss."
Shares of NationsBank dipped $1, to $58.75, while Barnett shares fell back after Friday's surge to close off $1.375, at $66.75.
Henry Dickson, bank analyst, Smith Barney, lowered his rating on NationsBank to "outperform" from "buy." He said the bank is still "a good long-term investment," but - citing difficulties encountered by Wells Fargo & Co. in its purchase of First Interstate Bancorp - he said investors are less willing to buy into company projections. "It will take some time (for NationsBank) to demonstrate it is getting the cost savings out of Barnett," he said.
Noting the company's falling stock price, Mr. Dickson said investor attention "has shifted away from NationsBank to prospective consolidation candidates," whose stocks can rise dramatically upon a deal. For example, Barnett gained $15.687 Thursday and Friday on word of the deal.
Michael Mayo, Credit Suisse First Boston, downgraded both NationsBank and Barnett to "buy" from "strong buy." "You don't have the chance for another takeover," Mr. Mayo said. The combination is a "great strategic fit, but it comes at an expensive price."
He noted that NationsBank is projecting negative impact on earnings over the next year and suggested investors will "look for other takeover names."
On the other hand, George Bicher of BT Alex. Brown raised his rating on NationsBank to "buy" from "market perform." Meeting the projected cost savings will be "a tall order," he said, but NationsBank's track record for successful acquisitions, the in-market nature of the deal, and the Florida market-one the fastest-growing in the country-should allow the bank to meet its goals.
With NationsBank "trading at 12.3 times our 1998 estimate, compared to the rest of the banking group at 13.5, its above average earnings growth, and a wonderful franchise, we think that makes for a good buy," he said.
Additionally, Lawrence Vitale of Bear Stearns and Ruchi Madan of Paine Webber reiterated their "buy" ratings on NationsBank. A.G. Edwards' David C. Stumpf upgraded Barnett to "accumulate" from "maintain position." Nancy Bush of Brown Brothers Harriman downgraded NationsBank to "underperform" from "market perform."
Elsewhere, First Tennessee National Corp., seen as a takeover target, was one of the bigger gainers. Its shares rose $2.875, or 5.40%, to $56.125 on heavy volume after an upgrade by Raymond James & Co. Hibernia Corp., also on heavy volume, gained 75 cents a share, or 4.94%, to $15.9375, after an upgrade by Mr. Mayo of CS First Boston.