Society to Pay $1.2 Billion In Stock for Rival Ameritrust
Cleveland-based Society Corp. on Friday said it had agreed to buy cross-town competitor Ameritrust Corp. for about $1.2 billion in stock.
The acquisition will increase Society's assets by 70% to $26.2 billion, placing it about 30th in the national holding company rankings. The deal caps a feverish bidding contest for ailing Ameritrust, which reluctantly put itself up for sale after National City Corp. went public with an unsolicited offer in May. A third major contender was Banc One Corp., Columbus, Ohio.
Big Premium over Book
Society said it was paying an indicated value of $31.20 per share for Ameritrust's stock, representing a hefty 96% premium over Ameritrust's June 30 book value of $15.89. Elmer Mazarus, a banking analyst with Roulston & Co., Cleveland, estimated that the deal will initially dilute Society's book value by 10%.
Society and Ameritrust shares dropped on the news in heavy volume. In late trading Society's stock had fallen $2.625 to $45.375 and Ameritrust's stock had dipped 50 cents to $27.25.
Analysts attributed the drop in Society's stock to market concerns about the high purchase price and the company's ability to deliver on cost-cutting promises.
"Thirty-one dollars a share represents the high end of the price range," said Fred Cummings, a banking analyst with McDonald & Co., Cleveland. "It means Society must deliver on the projected cost savings."
Millions in Cost Savings
Robert W. Gillespie, Society's chairman and chief executive, predicted the company would achieve $130 million of annual cost savings within a year after it acquires Ameritrust -- a sum equaling 30% of Ameritrust's annual noninterest expense.
The acquisition, which is subject to regulatory and other approvals, is expected to be completed in the first quarter of next year.
"The most important single aspect of this transaction is the speed with which we can bring cost savings to the bottom line," said Mr. Gillespie at a press conference on Thursday.
Deadline Set for Closing
To that end, Society officials on Friday pledged they would complete the merger of the two companies within four months after the deal is consummated. They said up to 1,000 jobs ultimately would be eliminated, trimming the combined work force to 13,000 employees.
Society estimated that $90 million to $100 million of one-time charges would be required to complete consolidations and work force reductions.
Addressing concerns about lingering asset quality problems at Ameritrust, Society said Ameritrust, with $10.6 billion in assets, had agreed to boost its loan-loss reserves by roughly $100 million before the merger is consummated.
Mr. Gillespie will continue as chairman and CEO of the merged entity. Craig R. Smith, interim chairman and chief executive of Ameritrust, apparently will keep his post until the merger is consummated, but will not have an officer's position after his company is acquired. At least eight Ameritrust directors, including Mr. Smith, will join Society's 22-member board, according to a Society announcement.
The union of Ameritrust and Society puts National City slightly on the defensive in a market it has traditionally dominated. Mr. Mazarus estimated that Society and Ameritrust combined would control 26% of the bank and thrift deposits in northern Ohio -- a clear edge over National City's 17% market share.
"Market dominance on the scale of Society's clearly will yield some important opportunities," Mr. Mazarus said.
At the same time, no one is counting out National City, the failed suitor. Its shares rose on the merger news, up $1.25 to $39.125 in late trading. Analysts attributed the advance to the removal of uncertainty about what type of deal it might have struck with Ameritrust.
Henry "Chip" Dickson, a banking analyst with Kemper Securities Group, Chicago, said National City actually stands to gain some business as a result of the Society-Ameritrust transaction. National City offers the most substantial alternative to customers.
PHOTO : Robert W. Gillespie Will head combined bank