Star Banc Corp. said Monday it had agreed to acquire Great Financial Corp. of Louisville, Ky., for $655 million in stock and cash.

At 2.3 times book value and 20 times Great Financial's estimated 1997 earnings, analysts rated the price high for a thrift company.

But the acquisition would bring Cincinnati-based Star into new areas of Kentucky, including the largest city, Louisville, as well as Lexington and Owensboro.

Star chairman and chief executive officer Jerry Grundhofer said in an interview that the deal for $3 billion-asset Great Financial has "low execution risk" and would add 2% to earnings in 1998.

"It fit our criteria for acquisitions," Mr. Grundhofer said, bolstering $10.8 billion-asset Star's presence in Kentucky and widening the base of customers to whom it can sell retail banking, mortgage, and trust products.

The acquisition, expected to close in the first quarter of 1998, would be Star's largest and its first of significant size in more than two years.

Part of the transaction's benefit is an anticipated $25 million in cost savings projected for the first year. Mr. Grundhofer said the savings would come primarily from cutting administrative and back-office expenses.

None of Great Financial's 45 branches would be closed, he said, and it was unclear how many of the 810 Great Financial employees would keep their jobs.

Great Financial is a retail-oriented bank and mortgage lender. "These are businesses we understand and we think we can add to with our products," Mr. Grundhofer said.

Publicly owned since 1994, Great Financial earned $15.4 million in the first half of 1997, up 18% from a year earlier.

Analyst Joseph Duwan of Keefe, Bruyette & Woods Inc. said the price was high but Mr. Grundhofer and his management team have earned credibility on Wall Street because of Star's performance.

"It's a full price, but it does give Star Banc more raw material to work with," the analyst said.

"In this environment, we're not going to get good deals," Mr. Grundhofer said of the pricing, "but we have a very high currency and we can afford to pay more than other companies."

Fred Cummings, an analyst with McDonald & Company Securities in Cleveland, agreed the price was high, but he said Star is not overpaying, considering the potential revenue and achievable cost savings. "It's a natural, strategic move into a market they're familiar with and a market very similar to northern Kentucky and Cincinnati where they already do business."

Star has a modest $600 million of Kentucky deposits. With Great Financial, Star would jump from being the 16th-largest to the fourth- largest banking company in the state, behind National City Corp., Banc One Corp., and PNC Bank Corp.

The acquisition would give Star a 19% deposit market share and the No. 2 position in Owensboro.

Star has not made a major acquisition since it bought $660 million of deposits and Columbus, Ohio, branches from Household International Inc. in 1995. It purchased another $1.1 billion of deposits with TransOhio of Cleveland from the Resolution Trust Corp. in 1994.

Paul M. Baker, Great Financial's chairman and chief executive officer, would retire in the first quarter at the closing of the acquisition. He would join the Star board of directors.

Terms of the agreement call for exchanging 70% of Great Financial's outstanding shares for Star stock, at a ratio of 0.949 Star shares for each one of Great Financial. The remaining 30% of Great Financial shares would be paid for in cash at $44 each.

Star shares closed Monday at $44.8125.

The exchange would be tax free for shareholders and would be done under purchase accounting. Star plans to repurchase a portion of the shares issued for the purchase.

As is common in such deals, Star has an option to purchase 19.9% of Great Financial shares that would be exercisable under certain conditions.

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