Wells Fargo & Co. continued its quest to bulk up in Texas by announcing plans to buy $1.2 billion-asset Prime Bancshares of Houston for $246 million of stock.
The deal, unveiled late Wednesday, would bring Wells Fargo 24 offices and $981 million of deposits in and around Houston, strengthening its position as the fourth-largest banking company in Texas. Wells now has 388 Texas branches with a combined $15 billion of deposits, an 8% market share.
Wells Fargo, which already has 84 Houston branches, sees big promise in the fourth-largest U.S. city, said Paul "Chip" Carlisle, the banking company's regional president for Houston. The deal for Prime Bancshares "really fills some major holes we had here."
The deal price was slightly low, equaling 16 times Prime's estimated earnings for 1999, or 2.7 times book value. Most banks have been selling for 18 to 20 times earnings.
Analysts said the deal fits precisely with the acquisition strategy of $202 billion-asset Wells Fargo, which was formed in November when Norwest Corp. bought the old Wells and took its name..
"They've done a brilliant job in Texas, cobbling together a whole lot of smaller players," said R. Jay Tejera, an analyst at Ragen MacKenzie Inc. in Seattle. "They are continually assembling market share and market power."
Wells Fargo's Texas acquisition tear is largely the legacy of the former Norwest. The banking company, which was based in Minneapolis, started buying community banks in the Lone Star State in 1994; since then it has closed 31 small deals there. Roughly a dozen of these purchases were of banks with operations on the outskirts of Houston, Mr. Carlisle said.
The former Wells Fargo, meanwhile, entered Texas in 1996 with its acquisition of First Interstate Bancorp. The deal brought the San Francisco-based company $3 billion of assets in the Houston area, where First Interstate's Texas operations had been headquartered.
"The former Wells had not been aggressive in acquisitions here, but Norwest has built up an incredible franchise throughout Texas," said Mr. Carlisle, a former First Interstate executive.
Wells isn't the only large banking company with its eyes on Texas. According to Mr. Tejera, Bank of America Corp. holds a leading 14% share of the Lone Star State market, with $29 billion of deposits and 513 branches. Bank One Corp. follows, with $18 billion and 179 branches, and Chase Manhattan Corp. is third, with $17 billion and 119 branches.
Though Wells would remain in fourth place, observers said the company has plenty of opportunities to climb the market share ranks. Because Texas once forbade branching, building a retail presence in the state is painstaking, and no one dominates. The state is full of small independent banks that could become takeover targets for Wells, Mr. Tejera said.
Mr. Carlisle concurred, suggesting that the Prime deal is the first of a series in the Houston area. "Houston remains one of those cities where the market shares of the other major banks aren't too huge," he said. "There still exists a number of independent banks that have significant market share."
After the Wells-Norwest merger, Mr. Carlisle said, he began getting the word out that the company was interested in buying. Wells communicated its interest in Prime several months ago, he said.
One reason Prime agreed to sell was the business style of Wells Fargo president and chief executive Richard M. Kovacevich, said Prime president E.J. Guzzo.
"He runs an organization that's aggressive and progressive, and it's not slash and burn," Mr. Guzzo said. "We've always tried to model ourselves after his franchise."
It was unclear whether Wells would close branches or cut jobs as a result of the acquisition, he said. However, there is "very little overlap" between the two franchises, said Mr. Guzzo, who would become vice chairman of Wells' Houston region after the deal closes in the first quarter.