Moving to triple its share of a key Michigan market, Old Kent Financial Corp. of Grand Rapids announced an agreement Wednesday to buy a Lansing thrift company for $242 million in stock.
The deal for CFSB Bancorp would lift $16.6 billion-asset Old Kent into the No. 1 position in deposits and residential mortgage loans in Lansing, the state's capital.
CFSB, which has $880 million of assets, would bring Old Kent 16 offices in the Lansing area.
The acquisition is in keeping with Old Kent's plan to expand in its home state by snapping up small and midsize institutions.
"Old Kent almost has a stranglehold on western Michigan and a growing presence in the rest of the state," said banking analyst Michael Moran of Roney Capital Markets in Detroit. "They are a statewide player and are looking to fill in where they have operating gaps."
CFSB, the parent of Community First Bank, would be Old Kent's 71st acquisition in the last 26 years, said vice chairman and chief financial officer Robert H. Warrington.
The company's last acquisition was First Evergreen Corp., a $1.9 billion-asset holding company in Evergreen Park, Ill., which was integrated into Old Kent in October.
"This acquisition creates economies of scale for us in mortgage production and deposits," Mr. Warrington said. "We also see this deal as being accretive to earnings in the first year."
Analysts said the price Old Kent agreed to pay-which is 3.3 times CFSB's book value-is fairly high for a thrift. In the fourth quarter, the median price paid for banks of CFSB's size was 2.8 times book, according to bank analyst William Katz of Merrill Lynch & Co.
"And a bank is more valuable than a thrift," he added.
But analysts said CFSB's strong balance sheet and earnings growth justify the premium.
"They paid a fair market price," said analyst Timothy W. Willi of A.G. Edwards & Sons Inc. in St. Louis. "I don't think they grossly overpaid, but I don't think they stole the bank, either."
Mr. Moran added that "the economics that CFSB delivers to Old Kent are worth it."
Old Kent's robust stock price enabled it to pay up for CFSB, analysts said. While other banks are trading at 15 times next year's earnings, Old Kent's multiple is 21
CFSB is seen as a good fit.
"Old Kent will be able to lever their retail platform by cross-selling financial products to CFSB customers," said Mr. Katz of Merrill Lynch. "They also expect $6.5 million in pretax cost saves by 2000, which is an aggressive but an achievable target."
Old Kent's appetite for expansion is growing as it looks to further increase its market share in Michigan, Mr. Warrington said.
"We have a strategic skill set in integrating companies," he said. "We want to take full advantage of our stock price and if we come across other companies that meet our standards, we will pursue them with vigor."
"Old Kent, Firstar (Corp. of Milwaukee), and Fifth Third (Bancorp of Cincinnati) are stepping up to the plate as acquirers, as other banks such as Wells Fargo and Bank One digest their recent acquisitions," Mr. Willi said. "Old Kent is a sizable bank with the wherewithal and stock currency to do deals."
The terms of the Michigan purchase, which is expected to close in the third quarter, call for CFSB shareholders to receive 5.4 million Old Kent shares at an exchange ratio of 0.6222 for one. It would be accounted for as a pooling of interests.
CSFB's president and chief executive officer, Robert H. Becker, would retire when the deal is completed.
