Shawmut National Corp.'s shares jumped Wednesday on takeover speculation. However, many market observers discounted acquisition rumors, saying that the New England regional is not of a mind to sell and that potential acquirers are handicapped by low trading multiples.
Stock in Shawmut, which is based in Hartford, Conn., and Boston, jumped $1.625 to $21.625, an increase of 8.125%, on volume of 4,507,700 shares. Average daily volume is 524,000.
Analysts and institutional investors cited a number of possible acquirers, including NationsBank Corp., Banc One Corp., and Fleet Financial Group.
Rumors that Money magazine columnist Dan Dorfman was preparing an article on Shawmut, combined with news that NationsBank filed a $3 billion shelf registration with the Securities and Exchange Commission, helped lift the stock, sources said.
Also, CS First Boston analyst Thomas Hanley has touted Shawmut as a prime takeover target. The analyst could not be reached on Wednesday.
Still, many Wall Street observers discounted rumors about a potential union between Shawmut and a predator such as NationsBank.
"NationsBank's multiple has taken a whack over the last couple months, just like all other banks, and I would imagine the company is more interested in repurchasing stock than issuing it for an acquisition," said Lawrence Vitale of Bear, Stearns & Co.
Based on current trading values, a Shawmut takeover would provoke significant shareholder dilution for most acquirers, added David Sloan, a fund manager with SIFE Trust Fund, which has a stake in Shawmut.
"If Shawmut does get bought out, realistically it would be for two times book value, and that is $32 a share," said Mr. Sloan. At that price, he said, the deal value would be nearly $4 billion.
The only way a deal could get done is if Shawmut bows to the current trading environment and accepts a multiple of far less than two times book, Mr. Sloan said.
"I don't think the banking industry is ready for a new precedent, and even if it is, Shawmut won't set it," said Mr. Sloan.
The executive said the rash of speculation on Shawmut is emblematic of the early 1995 market. "It is the beginning of the year, the consolidation picture is brightening, and people are making fresh bets on the next round of buyouts," he said.
Already this year, shares of Michigan National Corp., Compass Bancshares, and St. Paul Bancorp have soared on takeover speculation, he said.
Boosting the Shawmut rumors, despite the bank's past statements about staying independent, was recent heavy trading in the institution's warrants.
The strike prices were between $22.50 and $23, and the cost of the warrants were between $3 and $4, so the full price of the warrant was far greater than Shawmut's current trading range, Mr. Sloan said. The stock fluctuated between $18 and $20 last week.
The fact the holders were willing to cash in the warrants at $22.50 is a bullish sign, because it demonstrates they feel Shawmut stock will head significantly higher, said Robert Bonelli of Ernst & Co., an institutional broker.
Meanwhile, NationsBank's $3 billion shelf registration added to the speculation.
"If I were NationsBank on the eve of interstate banking, I would be building a (M&A) war chest," Mr. Bonelli said.
"And if I was interested in acquiring Shawmut I would be going in heavy right now to attain a significant, but nonrecordable position," he said.
NationsBank would not comment on the takeover rumors, and in a press release, said the filing was for corporate purposes only.
And many analysts said such a deal would not make any sense given NationsBank depressed stock.
"It is absurd," said Mr. Vitale of Bear Stearns.
"NationsBank has not been off making acquisition of other banking companies, and it would not make sense for the company to go that far afield."
Rather than expand through acquisitions, Mr. Vitale said, NationsBank probably will focus on streamlining its existing operations, shedding part of its branch system.
Amid a general rise in the bank sector, NationsBank closed down 50 cents at $46.125. Fleet was up a quarter to $31.75, and Banc One lost 62.5 cents, to $28.875.