Zions Bancorp. of Utah said Friday it has agreed to buy troubled Discount Corp. of New York, a primary dealer in government securities, for about $65 million in cash.
Harris Simmons, president and chief executive officer of the $3.9 billion-asset bank holding company in Salt Lake City, said Discount makes a good fit with Zions' existing activities.
Zions sold over $1 billion of securities last year to its institutional customers, including mortgage-backed securities and credit card receivables, as well as Small Business Administration loan pools.
The acquisition would increase Zions, ability to provide fixed-income securities to its existing customer base, while also providing a distribution network and new customer base for the bank's own products.
Robert Kurucza, a partner at Morrison & Foerster in Washington, and general counsel to the Bank Securities Association, said Zions' move "underscores the increasing intrerest of banks in a broad range of securities activities."
"I'm a little surprised that they've gone that route," said Miles Seifert, chairman of Gray, Seifert & Co., a New York money-management company. Zions is an "important holding" in the firm's portfolio of regional bank stocks, he said.
Discount's Stock Soars
Zions' stock closed Friday at $41.75, up $1.75. Discount's share price soared $2 to $7.25.
As a primary dealer, Discount is one of 39 firms authorized to buy government securities directly from the Federal Reserve Bank of New York. The acquisition would make Zions an incongruous addition to the big money-center and regional banks that have primary dealer operations.
The $65 million purchase price will be subject to adjustment, based on an audit of Discount's balance sheet after the deal is closed.
|Acquiring Very Liquid Assets'
Gary Anderson, Zions' chief financial officer, said the purchase price of roughly $8 for each share of Discount represents a slight premium to book value.
"Basically what we're buying is cash and securities, so really what we're doing is acquiring very liquid assets," in the form of government and agency securities. he added.
Zions is buying Discount though its principal banking subsidiary, Zions First National Bank, which has plenty of liquidity to cover the cash purchase price, Mr. Anderson said.
Discount put itself on the auction block in February, when it hired Goldman, Sachs & Co. to "explore financial alternatives."
The move followed an after-tax loss of $24.5 million in 1992, stemming largely from Discount's proprietary trading activities.
Mr. Simmons said Zions focuses on customer needs, rather than trading for its own account.
He said Zions initiated the contact with Goldman when Discount was put up for sale.
Goldman cast a wide net for bidders, but it wasn't immediately clear whether any other bids were submitted.
The purchase is subject to both bank regulatory approval and the approval of the holders of at least two-thirds of Discount's outstanding common shares.
A special shareholder meeting is expected to be held in early July.