In a bid to expand its services for individuals and broaden beyond traditional banking, Regions Financial Corp. of Birmingham, Ala., has agreed to buy the Memphis brokerage Morgan Keegan Inc. for $789 million.

Morgan Keegan would bring Regions capabilities in retail and institutional brokerage, fixed income, asset management, equity capital markets, investment banking, and mergers and acquisitions advisory.

Regions said Monday that the deal would bring an additional client base to which it can cross-sell its banking products. Morgan Keegan has 600 retail brokers and 54 offices in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Massachusetts, Mississippi, New York, North Carolina, Tennessee, Texas, and Virginia. Combined, the company would have 961 brokers in 14 states.

The deal is expected to close in the first quarter, pending approvals from regulators and Morgan Keegan stockholders.

Several rival southern banking companies have been trying to diversify by acquiring brokerage operations or commercial banks in neighboring states. Wachovia Corp. in Winston-Salem, N.C., bought Interstate/Johnson Lane Inc., with 450 brokers and 63 branch offices, and Amsouth Bancorp of Birmingham bought First American Corp. of Nashville.

Regions, with $43.6 billion of assets, has failed to match profit expectations in recent quarters. It had a five-year plan, called the Regions Asset Management Strategy, for expanding its investment services businesses. This acquisition would accelerate achievement of that goal, executives said.

In a conference call Monday, Regions chief executive officer Carl E. Jones Jr. said the deal is a “natural combination for growth.”

Regional brokerages have been struggling to overcome their distribution limitations. Many have sold out to far larger competitors. In June, J.C. Bradford & Co. of Nashville was sold to PaineWebber Group for $620 million.

During the conference call Allen B. Morgan Jr., chairman and CEO of Morgan Keegan, admitted he had been shopping around for a buyer in recent months. He said he was attracted to the deal because Regions’ geographic reach is similar to Morgan’s. After meeting with a number of other suitors, Mr. Morgan said, he had decided that Regions’ “culture was the closest we’ve seen to ours.”

Rosalind Looby, an analyst at Credit Suisse First Boston, questioned the deal’s timing. Market activity has been volatile this year, she said. Making a major deal for a securities brokerage firm now is “betting the markets are going to get better,” she said, “but it’s probably presumptuous to ask your investors to expect the same thing.”

Most analysts said the deal makes strategic sense for Regions. “In this environment, it’s not about banking anymore, it’s about financial services,” said Jason Goldberg, an analyst at Lehman Brothers. This deal is a move toward that end, he said.

Regions said cost savings would come in some overlapping markets — Regions has brokerage operations in seven states that overlap with Morgan’s. Regions said it expects the deal to produce pretax savings of $14 million annually by 2002.

The two companies’ operations overlap in trust and asset management, brokerage, and public finance. Regions said the combined entity would focus on the middle market.

Analysts said the combined entity may have a particular advantage in fixed income. Morgan Keegan has a large presence in the fixed-income market, where it underwrites a variety of securities, from municipal bonds to corporate issues.

The main risk in the Morgan deal is that the combined entity would not be able to meet its cross-selling and cost-saving goals, analysts said. Regions said it expects fee income to be 40% of total revenues after the deal closes, up from 30%.

Regions agreed to pay $27 for each share of Morgan Keegan stock and has established an employee retention pool of $5.55 million of stock options for key Morgan Keegan employees. Up to 30% of each Morgan Keegan stockholder’s shares could be exchanged for cash when the deal closes.

Morgan Keegan would maintain control of its own business and absorb Regions’ brokerage operations. The brokerage would operate as a wholly owned subsidiary of Regions but keep its top management, headquarters, and brand identity.

Regions Investment Co. would be folded into the Morgan Keegan operation, and Morgan Keegan executives would be responsible for setting earnings targets and strategy for the unit, Regions said.

Morgan Keegan senior management, which owns 23% of the stock, agreed to approve the deal, as have both companies’ boards of directors.

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