Shares of CoreStates Financial Corp. fell Wednesday as investors concluded that a sale of the Philadelphia bank has become less likely any time soon.
On Tuesday night CoreStates said it had again rejected an offer from Mellon Bank Corp. said to be worth $88 per share. CoreStates stock dropped $2.9375, to $77.625, despite a statement by the chairman and chief executive officer, Terrance A. Larsen, that a merger has not been ruled out. (See story on page 1.)
Even if CoreStates were a willing seller, analysts were hard-pressed to name a likely buyer.
No bank offers more highly valued stock-or "currency"-than Mellon, or the chance for as much in cost savings, analysts said. Its currency is so high because Mellon doesn't really trade like a bank stock. The company, which owns Dreyfus Corp., generates much of its revenues from asset management, so Wall Street values Mellon more like a mutual fund company.
While most analysts and investment bankers say they believe CoreStates will sell eventually, the list of banks that could afford CoreStates without diluting their shares - and who are not occupied with their own mergers - is quite limited.
Banks such as PNC Bank Corp. or National City Corp., which have similar market capitalizations to CoreStates, are likely to be scared off by CoreStates' big price-to-earnings ratio, which has risen to a speculation- laden 19.78. That means almost any acquirer would have to dilute the value of its shares to buy the company, analysts said.
"CoreStates doesn't fit on the agendas of too many banks," said Josephtal, Lyons & Ross analyst Frank Barkocy. He noted that such acquisitive-minded banks as First Union, NationsBank Corp., and Banc One Corp. have their hands full with pending mergers.
The lack of obvious bidders besides Mellon and the apparent turmoil within CoreStates led Brown Brothers, Harriman & Co. bank analyst Nancy Bush to slap an unusual "avoid" rating on the bank.
She said there are signs from Tuesday's board meeting that the bank's board and management could be in for a bruising internal battle.
Ms. Bush said that the bank is the same as before the takeover buzz began, with the same earnings performance problems. "The bank is overvalued-much more overvalued than any other we cover," Ms. Bush said.
Until the bank resolves the apparent rift between management and at least some of its board members, she said, she doubts the bank will be entertaining offers.
"It's unlikely others will step in until CoreStates invites bids," Ms. Bush said, "and given the divisiveness clearly on its board, it's hard to say when that will happen."
Elsewhere, shares of subprime auto lender Credit Acceptance Corp. continued their recent slide, closing down 81.25 cents, to $9.75.
The lender, which offers financing to the lowest-rated customers, has reportedly run into problems with the Internal Revenue Service, which is balking at the way Credit Acceptance and some other auto lenders have paid taxes on loans they make over several years.
Analysts say the government wants the companies to pay all the taxes within the first year of making the loan.
The S&P Bank index fell 4.23 points, to 635.51, while the Dow Jones industrial average fell nearly 26 points, to 8,8034.65.