When Springfield-based Firstbank of Illinois Co. recently sought a buyer, Mercantile Bancorp. of St. Louis was at the top of its list.

What made Mercantile so attractive as a prospective buyer? For years, the St. Louis company has been considered a takeover target itself. That means Firstbank shareholders, including board members and the bank's management, are likely to benefit twice from large stock premiums.

"It's hard not to think about that," said Mark H. Ferguson, chairman and chief executive officer of Firstbank, who agreed last week to sell the $2.2 billion-asset company to Mercantile.

With the rapid pace of mergers in the banking industry, executives, directors, and shareholders are increasingly aware that companies they sell could subsequently be bought, giving investors a so-called double dip.

This not only makes some banks, like Mercantile, more attractive as buyers, but it also makes it harder for some other companies to win deals.

"It's hard to criticize Norwest," said one investment banker of the Minneapolis bank. "But when you say, 'Is Norwest going to be a takeover candidate?' the answer is no. But Mercantile is."

The double dip, in which investors get the benefits of one acquisition after another, has become a hot topic in many bank boardrooms where mergers are being considered.

"It's always a discussion point. Absolutely," said John J. Harris, an investment banker with ABN Amro Chicago Corp. "Is it a reason to do a deal? Probably not, but it is a factor." Mr. Harris said the question has been broached in nearly every deal in which he has been involved.

Examples abound of companies agreeing to sell to takeover targets in the Midwest. First Midwest Bancorp of Itasca, Ill., said in January that it would buy Heritage Financial Services Inc. of Tinley Park, Ill. The merged company would have $5 billion of assets and No. 1 or No. 2 market share in three of Chicago's suburban counties. That would make it an attractive takeover candidate for numerous companies, a point that was not lost on Heritage directors, said sources.

Likewise, the dozen companies that have agreed to sell to Mercantile over the past three years certainly knew their investments could benefit from the "double dip or even triple dip," said Michael Ancell, an analyst with Edward D. Jones & Co. in St. Louis.

"You've got to put yourself in the selling bank's shoes," Mr. Ancell said. "Do you want to sell to NationsBank or Banc One, who nobody thinks will ever get bought out? Or do you sell to Mercantile?

"A lot of bank investors buy on the double-dip theory," he added.

Fourth Financial Corp. of Wichita, Kan., sold to Boatmen's Bancshares in early 1996, and by Labor Day weekend of that year, Boatmen's had already agreed to sell to NationsBank Corp. of Charlotte, N.C. Boatmen's hadn't even taken down the Fourth Financial signs.

First Colonial Bankshares of Chicago agreed in late 1994 to sell to Firstar Corp. of Milwaukee even though another bank-believed to be First Bank System, now U.S. Bancorp, of Minneapolis-had offered a higher price.

In First Colonial's December 1994 proxy the company said it took the bid from Firstar in part because there was a "perceived greater likelihood of a subsequent sale of Firstar."

The savings and loan industry has also gone through heavy consolidation in the last few years, and the double dip has been a factor in those deals too.

Thrift investors are "quite aware" of the potential in multiple acquisitions, said Thomas O'Donnell, a thrift industry analyst for Salomon Smith Barney.

To be sure, many companies do not sell solely for a double dip.

"I would hope management would focus on the immediate impact of a merger," Mr. O'Donnell said.

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