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Sovereign branches out
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April 27, 1998: 2:28 p.m. ET
Pennsylvania bank to pay $185M for 95 First Union, CoreStates branches
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NEW YORK (CNNfn) - In a regional expansion play, Sovereign Bancorp Inc. said Monday it had struck a $185 million deal to acquire 95 branches of CoreStates Financial Corp. and First Union Corp. located across a broad swath of Eastern Pennsylvania and New Jersey.
The agreement came less than two weeks after the Federal Reserve Board voted to approve First Union's proposed $17.1 billion buyout of CoreStates. The merger was approved by shareholders of both companies on February 27.
First Union said earlier this month that the approval was granted following an agreement with the Justice Department to divest certain of its branches. The merger was slated to close on April 30, pending the satisfaction of that and other conditions.
It was unclear whether the First Union divestitures satisfied the Justice Department's conditions for merger.
Regardless, the deal represents a boon for Sovereign, a Wyomissing, Pa.-based thrift holding company with one principal subsidiary, Sovereign Bank. The acquisition will add $2.3 billion in commercial bank deposits and roughly $800 million of commercial and consumer loans to a portfolio that includes 190 community bank offices in Pennsylvania, Delaware and New Jersey.
The transaction, accounted as a purchase, is expected to be added to cash earnings in 1998. The pre-tax value of the deal is $318 million.
Small fry in realm of mega-mergers
Measured against the multibillion dollar blockbuster mergers that have upended the financial sector in recent weeks, the Sovereign deal is relatively small. But the rationale behind the buyout is strikingly similar to that underpinning the larger deals.
The acquisition will effectively give Sovereign, the third largest bank in Pennsylvania, what Jay Sidhu, its chief executive officer and president, calls "the market presence in Philadelphia that we have been looking for."
Of the 95 branches to be acquired, 29 are in Philadelphia and its suburbs, nine are in Pennsylvania's Lehigh Valley and about 42 are in central and north central Pennsylvania. The remainder lie within Sovereign's extended market domain and include 12 branches in New Jersey and two in Berks County, Pennsylvania.
Sidhu said Sovereign would set up a "significant" commercial lending operation in Philadelphia, including an asset-based lending unit, "as soon as practicable."
Most of the branches in north and north central Pennsylvania were the former Commonwealth Bank offices that Meridian Bank acquired in the mid-1990s. They became Sovereign holdings when that bank subsequently bought Meridian.
The latest acquisitions come on top of two other pending buyouts by Sovereign which are expected to close in the second or third quarters. One is a $432 million buyout of Princeton, New Jersey-based Carnegie Bancorp. Inc., and the other a $531 million deal to acquire First Bancorp Inc., a holding company with subsidiaries in New Jersey and Delaware.
After all these deals go through, Sovereign will boast $21 billion assets and more than $12 billion deposits in more than 280 community bank offices.
Shares of Sovereign (SVRN) were trading down 15/32 at 18-15/16 at midday Monday.
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