Wells Fargo & Co. said Wednesday that it plans to enter Michigan for the first time with an agreement to buy Michigan Financial Corp. of Marquette for $209 million in stock.
The deal for $834 million-asset Michigan Financial, which has 34 branches in the Upper Peninsula, is the latest example of Wells Fargo's strategy -- the legacy of predecessor Norwest Corp. -- of moving step by step into new markets.
The acquisition of Michigan Financial "is vintage Norwest M&A," said Henry C. Dickson, an analyst at Salomon Smith Barney. "They continue to fill out the franchise." Norwest had a pattern of making small deals, often for rural community banks.
Executives from San Francisco-based Wells Fargo portrayed the deal as an extension of the company's Wisconsin operations, in keeping with plans to enter markets that have similar characteristics and border on existing strongholds.
"We are focused on growing into contiguous states," said John Berg, group executive vice president in charge of Wells Fargo's eight-state central banking group. Michigan would make that nine. "In terms of the industry, the tourism, and the people, this is very much like our Wisconsin market," he added.
Wells Fargo, formed last year by the merger of Norwest of Minneapolis and the old Wells Fargo, has coveted entry into Michigan, analysts said. Comerica Inc., a $37 billion-asset banking company in Detroit, has often been mentioned as a likely partner.
The deal, slated to close in the first quarter, would boost Wells Fargo's branch presence in the Great Lakes region by more than 25%. The $207 billion-asset banking company currently has 120 branches in Wisconsin, Illinois, Indiana, and Ohio. It has another 168 branches in Minnesota. In total, Wells Fargo has 6,000 branches, in 21 states, from Lake Erie to the Pacific Ocean.
Mr. Berg said the acquisition could set up Wells Fargo for another deal to expand in Michigan, perhaps into the more populous areas to the south. "If the opportunity presents itself, absolutely," Mr. Berg said of the potential for more deals. He added that Wells Fargo also has an eye on entering Kansas and Missouri. "It's a natural" extension, he said.
Wells has been on a bit of an acquisition tear in recent months, even as it continues to integrate the operations of its predecessor banks. In September it agreed to buy North County Bancorp in Escondido, Calif., for $112 million. In August the company said it would buy First Place Financial in Farmington, N.M., for $175 million. In July, Wells made a $245 million deal for Prime Bancshares in Houston.
As with those deals, the acquisition of Michigan Financial would give Wells Fargo another platform from which to cross-sell products to consumers, including insurance and investment products and Internet banking services. Michigan Financial also owns Michigan Financial Life Insurance Co., which underwrites credit life, accident, and health policies for the bank's customers.
"In terms of revenues, we think there will be some significant enhancements," Mr. Berg said.
"We believe it's essential for Michigan Financial to become part of a larger, more diversified financial services company," said Howard Cohodas, chairman and president. Mr. Cohodas would stay on to run the operation. No layoffs are planned among Michigan Financial's 675 employees.
The Great Lakes states are chock full of opportunities in the consumer and small-business markets, analysts said. "Those are important businesses for Wells, and there aren't a lot of other banks in the area that are as good at it," said Lori Appelbaum, an analyst at Goldman, Sachs & Co. She identified Milwaukee-based Firstar Corp. and Cincinnati-based Fifth Third Bancorp as the strongest competitors to Wells Fargo for small-business and retail customers in the Midwest.
The Michigan Financial transaction requires regulatory and shareholder approval. Wells Fargo plans to issue 4.4 million shares of its stock to buy all of Michigan Financial's shares. On Wednesday, Well Fargo's stock closed down $1, to $46.125, in line with shares of other large banks.
Michigan Financial was advised by McConnell, Budd & Downes Inc., an investment bank in Morristown, N.J. Wells Fargo acted on its own behalf.