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Banc One buys First USA
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January 20, 1997: 9:52 a.m. ET
Banking giant vaults into top tier of credit-card cos. with $7 billion deal
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NEW YORK (CNNfn) -- Banc One Corp. said Monday it will acquire First USA Inc., a credit card company serving 16 million cardholders, in a $7.3 billion stock deal that could turn the banking concern into a consumer finance powerhouse.
In its biggest-ever purchase, Banc One is expected to use First USA to increase its stature as a national banking company. Combining First USA's $22.4 billion in outstanding loans with its own $12.7 billion card business, Banc One would vault into the top three or four companies in the industry. The company would provide credit cards to 32 million people.
Banc One said it agreed to pay 1.1659 shares of stock, about $52.61, for each First USA share. First USA closed Friday on the New York Stock Exchange at $36.75 a share, up $2.125. Banc One gained 12.5 cents to $45.125 a share.
The deal now requires final approval from shareholders and anti-trust regulators.
Banc One, based in Columbus, Ohio, is the nation's 10th largest bank, with $90 billion in assets and more than 1,500 offices in 13 states. The company has never made an acquisition of this size, but executives were reportedly convinced the deal was right because of the success of First USA, an industry upstart that transformed itself from a small card issuer into one of the most powerful in the country.
Based in Dallas, First USA ranks fourth in the nation among credit-card companies. It was created in the 1980s as a spin off of the Dallas bank MCorp., which later collapsed and was bought up by Banc One for $500 million in 1990.
Some analysts speculated that the acquisition might dilute Banc One's earnings. The company reported a record 1996 profits of $1.4 billion on Monday, a 12 percent rise from the previous year. However, stock in the company has remained uninspired at a time when First USA's stock soared.
Tom Brown, banking analyst at Donaldson Lufkin & Jenrette, gave high marks to Banc One for its decision to acquire a credit-card company known for savvy marketing. In many past cases of bank expansions, Brown said the banks had overlooked the importance of understanding their customer base.
"What we're finding is banks which are financial conglomerates are determining which lines of business they want to be in," Brown said. In Banc One's case, executives made an acquisition that will bolster its position and knowledge in the credit card industry, he added.
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