Old Kent's Cautious Game Plan Survives Setback in Indiana
Even in today's hyperactive bank mergers and acquisition market, the best-laid plans can fall apart.
A case in point is Old Kent's proposed acquisition of Hasten Bancorp -- a deal that was supposed to herald Old Kent's entry into Indiana.
John Canepa, chief executive officer of Michigan-based Old Kent, said in August 1990 that his bank holding company was actively seeking acquisition targets in Indiana and Wisconsin.
Acquiring Indianapolis-based Hasten, which had $617 million in assets at yearend 1990, would show that his pronouncement was more than just talk.
And the proposed acquisition of Hasten, which has four banks and 24 offices within 100 miles of Indianapolis, would have provided the $8.2 billion-asset Old Kent with a strong base for expansion in the Hoosier state.
Deal Was Called Off
But Old Kent's big-bang entrance fizzled in early September when the Hasten deal was terminated. B.P. Sherwood, Old Kent's vice chairman and treasurer, said attempts to negotiate a definitive agreement failed. He declined to disclose the reasons.
"We remain under a confidentiality agreement with Hasten and are not at liberty to disclose anything about them or their business," Mr. Sherwood said.
That leaves Old Kent on the outside of Indiana looking in, while it faces doubts about how well it will be able to achieve its publicly announced ambitions.
As Mike Milunovich, an analyst at the Cleveland investment firm of Robert W. Baird & Co., noted, "Wisconsin has become very pricey, and Indiana's been pretty much picked over."
Similarly, Joe Stieven of the investment firm of Stifel, Nicolaus, St. Louis, said that Old Kent will continue to look at acquisitions that will not interrupt earnings-per-share growth. "They'll continue to do smaller deals."
A Cautious Buyer
Although it has been an active acquirer, making 42 acquisitions since its creation in 1972, Old Kent has not developed a reputation for making big acquisitions in the merger-laden Midwest, where the prevailing attitude seems to be buy or be bought.
"They've not been among the more aggressive acquirers when it comes to buying banks," said Anthony Polini, an analyst with A.G. Edwards & Sons, a St. Louis investment firm.
In fact, in the past year, Old Kent has picked up only a branch here and there to fill out its markets.
Robert Baird's Mr. Milunovich thinks this may actually be a plus, noting that he'd rather see Old Kent executives "take their time and do it right."
Mr. Stieven likes companies that emphasize "growth in originally reported earnings and capital strength, and Old Kent delivers both."
While Old Kent has a strong desire to expand, the bank's cautious nature has so far limited the scope of its dealmaking.
In locating acquisition targets, Old Kent, which has maintained a return on average assets of slightly more than 1.00% since 1986, looks for institutions with high quality assets in growth markets and avoids any sickly institutions.
"We don't consider ourselves to be experts in turnaround situations," Mr. Sherwood said.
Healthy, well-managed institutions fit best with Old Kent's decentralized system, which allows for decision-making at the local level. While acquired institutions remain largely the same on the surface, Old Kent centralizes the back-office functions, which results in cost savings.
Old Kent is on the verge of realizing those cost savings in Illinois, a market it entered in 1987 with the acquisition of Elmhurst-based Illinois Regional Bancorp, which had $550 million in assets at the time of the acquisition.
Old Kent's October 1988 acquisition of Chicago-based Unibancorp, which had $605 million in assets, allowed it to consolidate the back-office functions of its Illinois franchise in one service center, which went into operation earlier this year.
By yearend, Old Kent expects to have its Illinois franchise consolidated into one bank based in Elmhurst.
The Right Opportunities
Being selective has led Old Kent down a number of different paths in the past year: two branch purchases and a Resolution Trust Corp. transaction, in addition to the defunct Hasten deal.
In that time, Old Kent announced a deal with First Federal Savings Bank and another with Great Lakes Bancorp that would add 11 branches and 183 million in deposits to its Michigan franchise.
Old Kent's Chicago franchise grew as well, thanks to the acquisition of $80 million in deposits of St. Charles Federal Savings Association from the RTC.
Whether the deals involve branch purchases, RTC transactions, or acquisitions of entire institutions makes no difference to Old Kent. "We've done some of each in the past 12 months," Mr. Sherwood said. "There is no preference. It's more of a question of opportunities in the market."
Where will Old Kent find the next opportunities? "We continue to have an interest in making acquisitions in Indiana, as well as in Illinois, Wisconsin, and Michigan," Mr. Sherwood said.
"We'll go where the opportunity is. We don't particularly target a state and say we're going to get there at all costs."
Seeking to Grow
The opportunity Old Kent is looking for is the chance to obtain critical mass in Indiana or Wisconsin.
"If you're going into a new state, you need a strong base on which to build," Mr. Sherwood said. "You don't go 200 to 300 miles away and acquire a $100-million bank."
Old Kent may not go that far away for its next acquisition. With one subsidiary already operating a branch on the Michigan-Indiana border, Old Kent has the fertile territory just across the border in sight and mind.
"We're very familiar with the northern Indiana market," Mr. Sherwood said, "and it would logically make sense to find a merger partner in that market."
Until it finds the right target, Old Kent will probably continue to fill its markets in Michigan and Chicago and wonder what might have been with Hasten.
In an environment where most banks are likely to be either buyers or sellers, Old Kent's inability to fulfill its chairman's expansion mandate may put the company on the shopping list of big midwestern and snowbelt players like Banc One, KeyCorp, Norwest, National City, and NBD.
Most observers believe that Banc One would savor the opportunity to acquire Old Kent in a friendly or white knight transaction, and that with an equal fervor, Old Kent cherishes its independence.
Thus a combination between the two companies is likely only if Old Kent becomes more receptive or finds itself the object of an unsolicited offer like the one National City made for Ameritrust.
While neither situation is likely in the near future, the outlooks and fortunes of bankers can change very rapidly.
Ed Dillon is a contributing editor and Ron McRae senior editor of Bank Mergers and Acquisitions, an SNL Securities newsletter. SNL is a data base and publishing firm based in Charlottesville, Va.