PNC Bank Corp. came out swinging at critics of its planned merger with Midlantic Corp., asserting in a proxy statement that the deal would generate a higher return for shareholders than any alternatives, including its shelved share repurchase program.

The deal has been under intense scrutiny since Lehman Brothers analyst Michael Mayo issued a report last month predicting shareholders, unhappy with the merger's earnings dilution, would vote the acquisition down.

In what some observers called an unusually aggressive proxy, PNC defended the merger, saying it would expand the bank's geographic reach, improve its balance sheet, reduce costs, and increase revenues.

The proxy, mailed to shareholders last week, said PNC and its adviser, Smith Barney Inc., predicted the merger would deliver a return in excess of 15%, "which is higher than other investment alternatives, including PNC's share repurchase program."

This statement met with skepticism from analysts.

"You need to look at risk adjusted returns, and buying back stock is riskless," said Michael Durante, who covers PNC for McDonald & Company Securities Inc. "In an acquisition there is substantial execution risk, meaning they might not get the revenues outlined.

"If they had repurchased most of the shares quickly, they could have gotten a risk-free return of 15% to 16%, so a risk reward return still favors the share repurchase program over the merger," he added.

An arbitrager with a significant stake in PNC said there were no statistics in the proxy to support PNC's argument that the merger would have a higher rate of return than the share repurchase program.

This arbitrager said, however, that PNC could always reinstitute the share repurchase program after the merger closes.

The merger appears safe from a shareholder revolt, the arbitrager added. Because only 85% of investors usually vote at PNC and more than 10% of PNC's shares are owned by its asset management company, he said, the bank needs to control only one-third of the remaining shares.

The bank has scheduled a shareholder meeting for Nov. 17.

The proxy was seen as unusually aggressive in that it outlined reasons for the merger on the fourth page . Most companies save such arguments for a "reasons for the merger" section in the middle pages of the proxy. In PNC's case, those pages were used to reiterate the defense of the deal.

The proxy revealed that top executives of Midlantic would receive severance packages totaling $12.6 million. These include, among others, chief executive Garry Scheuring, who will become a PNC vice chairman; chief financial officer Howard Atkins, who will become executive vice president of asset and liability management/treasury; commercial banking head James Lynch; chief credit officer Alfred Schiavetti; and retail banking chief Alan Silberstein.

The options exercisable on the date of the merger by the five above- named executives are worth more than $5 million.

Midlantic will pay its merger adviser, Merrill Lynch & Co., $10.9 million, and Smith Barney will receive $3.75 million from PNC.

The proxy said Midlantic and PNC had informally discussed the merger for some time, but talks got serious in late June after the First Fidelity Bancorp.-First Union Corp. merger was announced.

The Federal Reserve Board and New Jersey's commissioner of banking have approved the merger.

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