Why NCNB Paid a Rich Price for C&S

NCNB Corp. paid a rich price to acquire C&S/Sovran Corp., but few investment professionals are squawking. One reason: Some suspect that NCNB and C&S/Sovran officials are being extremely conservative about potential cost savings.

Greater cost savings should eventually translate to higher profits and a higher stock price.

One believer is Nancy A. Bush, regional bank analyst at Brown Brothers, Harriman & Co., who suggested that NCNB and C&S/Sovran are "low-balling the cost-savings estimates."

Under terms of the deal, C&S/Sovran shareholders would get 0.84 of an NCNB share for each of their shares.

"Obviously, I would have liked the package a lot better at 0.75, but the window of opportunity was there, and NCNB did what was necessary to get things done," said Ms. Bush.

The transaction would dilute the interests of NCNB shareholders by 10%, Wall Street analysts said, unless it is offset by a boost in earnings. And that is where the cost-savings estimates come into play.

NCNB and C&S/Sovran officials said this week that they hope to save $350 million in annual operating costs through the merger. If they were able to squeeze out an additional $50 million to $100 million in savings, that could easily make up for the 10% dilution.

In addition, NCNB still has about $1.5 billion of combined net operating losses and other losses it can use to reduce its taxes. These stem from its 1988 government-assisted acquisition of the failed First RepublicBank Corp.

A typical reaction to the merger deal came from Cheryl Swaim of Oppenheimer & Co. "I would rather have seen them pay a little less," she said, "but I'm not surprised. [C&S chairman] Bennett Brown got a good deal for his shareholders."

Ms. Swaim said she sees 1992 earnings being enhanced somewhat by the deal, but added: "Basically, what they are doing is throwing the dilution into 1991, where it will be somewhat invisible since they won't be reporting any earnings as the combined company until 1992."

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