Shares of UJB Financial Corp. plummeted Monday after the New Jersey banking company announced it had agreed to acquire Summit Bancorp, shares of which in turn surged on heavy volume.
The hefty 2.42 times book value to be paid for Summit, and disappointment that UJB itself was not being sold, helped punish the stock, analysts said.
UJB, based in Princeton, finished down $2.875 at $33.75, an 8% decline, while Summit soared on the news to $28.75, a 12% rise, on volume of 2.01 million shares.
Unlike the reaction to numerous other mergers announced this year, shares of many leading bank takeover candidates did not rise on the news, as bank stocks only kept pace with the overall market.
Shares of two of the best remaining takeover candidates in the Northeast, Meridian Bancorp, Reading, Pa., and Sovereign Bancorp, Wyomissing, Pa., barely budged on the news.
"We have gotten spoiled with the size of past deals," said Scott Edgar, an analyst with Sife Trust Fund of Walnut Creek, Calif. "The $1.2 billion UJB deal is relatively large, but not compared to past deals, so the excitement is just not there."
The Standard & Poor's index of major bank stocks, which has soared in past months on a series of large bank merger announcements, moved forward 0.47%, compared with the S&P rise of 0.21%.
There have also been a series of articles in various publications questioning the value of bank mergers and pointing out that many takeover stocks have already been fully priced, Mr. Edgar said.
"A lot of these stocks have had a pretty good run-up, and maybe the euphoria is over for a while," he added.
The only exception to the trend appeared to be in New Jersey, where a local analyst noted that stocks of some smaller banking companies had risen sharply in response to the UJB-Summit deal.
Shares of banks like United National Bancorp, Valley National Bancorp, and B.M.J. Financial Corp. were all up, said Elizabeth M. Summers of Ryan, Beck & Co., West Orange, N.J.
Ms. Summers defended the price UJB will pay for Summit, saying it is in line with prices paid in the state. As to the sharp drop in UJB stock, she attributed that to arbitragers selling the stock of an acquirer.
"In addition you have people who bought UJB because they thought a takeover was imminent and are now exiting the stock," she said.
In other news, analyst Michael K. Diana of Bear, Stearns & Co., New York, issued a report late last Friday that argued PNC Bank Corp.'s acquisition of Midlantic Banking Corp. was not imperiled.
Last week, Lehman Brothers analyst Michael L. Mayo caused a stir when he asserted the merger might fall through because shareholders were unhappy with the high price tag.
Mr. Diana, however, said his talks with shareholders revealed otherwise.
"The deal will happen," Mr. Diana proclaimed in the report. "Our conversations with various of PNC's large shareholders reveal the usual preference for paying less than more for an acquisition, but nowhere near the level of dissatisfaction that we believe necessary to vote against the deal."
PNC shares finished down 12.5 cents, to $27.375.
Analyst Robert Albertson of Goldman, Sachs & Co., New York, downgraded First Interstate Bancorp. on a price basis to "moderate outperformer" from "trading buy."
The Los Angeles bank's stock has risen 45% so far this year, the analyst explained. As a result, shares are close enough to Goldman's $114-per-share prediction for yearend 1996 to merit a downgrade.
The bank closed down $1.25 at $98.875, after rising sharply last Friday when another analyst, George M. Salem of Gerard Klauer Mattison & Co., was quoted in a national publication saying the bank could be bought for $120 per share.