Southern National Corp. announced an agreement Monday to acquire United Carolina Bancshares in a pricey transaction that would make it the largest in North Carolina deposits.
For $985 million in stock, or 2.85 times book value, Southern National's Branch Banking & Trust Co. would vault past First Union Corp.'s First Union National Bank to become No. 1 in the state that is also home to NationsBank Corp. and Wachovia Corp.
Increasing total assets by a pro forma $4.4 billion, to $25.8 billion, Southern National would jump five notches on the U.S. bank holding company list, to No. 30.
Analysts said given the banks' high price-earnings multiples and anticipated expense reductions of $65 million, the price was not unreasonable.
Said John Bailey, an analyst with Friedman, Billings, Ramsey & Co. in Roslyn, Va.: "Even using a conservative formula for the cost savings they hope to achieve, this looks like a really good deal."
Of the anticipated savings, $28 million would come from branch consolidations and $37 million from back-office integration.
The in-market merger will cause a one-time charge of $40 million to $50 million in 1997, reducing per-share earnings by eight cents. But it will add a projected five cents to full-year profits by 1998. Analysts viewed that as a fast payback, as most mergers are not "accretive" until at least the third year.
"This thing is going to be economically viable pretty quickly," said Hal Schroeder, a banking analyst with Keefe Bruyette & Woods Inc.
"It looks like they'll get a return out of this deal in relatively short order," said Lawrence R. Vitale, a banking analyst with Bear Stearns & Co.
After the purchase of Whiteville, N.C.-based United Carolina, Southern National hopes to achieve an efficiency ratio - the measure of costs to revenues - of 50%. Southern National, based in Winston-Salem, posted a 53% ratio for the first nine months this year, while United Carolina was at 62%.
Some 1,000 jobs are to be cut from the banks' combined work force of 10,500, with United Carolina expected to take the hardest hit. The banks said they hoped to achieve much of that goal through routine turnover and early retirement. To help compensate for the expected loss of jobs in Whiteville, Southern National said it plans to open a telephone banking center there employing 500 people.
Southern National operates 425 offices in the Carolinas and Virginia, while United Carolina has 153 in North and South Carolina. The two banks have estimated that 80 branches, or more than half of United Carolina's network, are duplicative.
"We share similar cultures and a similar commitment to decentralized decision-making," said Southern National chairman and chief executive John A. Allison. He noted that both had started out as eastern North Carolina farm banks.
The merger agreement leaves North Carolina with only three banks - other than the superregional players - with more than $1 billion of deposits: First Citizens Bancshares of Raleigh; Centura Banks Inc., Rocky Mount; and CCF Financial Corp., in Durham.
Mr. Allison said the acquisition would make Southern National - itself the product of a 1995 merger with BB&T Financial Corp. - invulnerable to takeover from another large North Carolina bank because it would run afoul of Federal Reserve deposit-concentration guidelines.
But Mr. Allison acknowledged that a bigger Southern National may seem more appealing to outside buyers.
"Our goal is to remain independent and there's no question the merger helps us achieve that goal," Mr. Allison said. "But we're really walking the razor's edge because if we don't perform we'll probably get bought up by someone from out of state."
He also said the merger would make it easier to invest in technology and help ward off growing competition from nonbanks.
United Carolina's two main banking units, United Carolina Bank and United Carolina Bank of South Carolina, will merge into Southern National's two units, Branch Banking and Trust and Branch Banking and Trust Company of South Carolina.
The deal, the fifth-biggest this year among banks, calls for Southern National to exchange 1.135 of its shares for each share of United Carolina. Southern National closed Monday's trading at $33.50, down $1.75, while United Carolina rose $8.50, to $36.
The merger is expected to be effective June 1, pending shareholder and regulatory approvals.
