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Fleet, BankBoston to merge
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March 14, 1999: 5:30 p.m. ET
$16B deal to create nation's eighth largest bank, New England powerhouse
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NEW YORK (CNNfn) - Fleet Financial Group and BankBoston Corp. entered a $16 billion merger deal Monday that would create a New England financial powerhouse.
The combined company, to be called Fleet Boston Corp., will become the country's eighth-largest bank with more than $180 billion in assets.
But top executives at both firms were put on the defensive Monday after analysts questioned whether the 13 percent premium paid to BankBoston was too small.
"This is a merger of equals and I'd like to underscore that," said Terrence Murray, Fleet's chief executive officer. "When you fully digest the management structure . . . this will truly reflect the best of both companies.
"In my view, and in our board's view, we have a strategic combination," said Chad Gifford, BankBoston's chairman and chief executive officer. "We didn't sell the bank."
Is 13 percent premium enough?
Under the terms of the deal, BankBoston (BKB) shareholders will receive 1.1844 shares of Fleet (FLT) for each BankBoston share they own. Based on Friday's closing price, the deal values BankBoston shares at $53, a premium of 13 percent over the stock's closing price on Friday.
Some analysts were projecting the Boston-based bank could have generated a price worth closer to $60 a share and questioned whether shareholders might initiate calls for a higher offer.
"A 13 percent premium may irk some fairly large shareholders, who may say that's not enough," said Charles Peabody, banking analyst at Mitchell Securities, noting that shareholders have pressured the management of BankBoston in the past to boost the stock's price.
"A 13 percent premium may rejuvenate some of that feeling," he said.
But Murray called such a scenario "improbable" given the deal's expensive break-up fees and the combined banks' projected market capitalization of $40 billion.
"Could that happen? Yes," Murray said. "But the probability is probably not. There are only one or two or three companies capable of [doing] that...and right now, a couple of those major companies are tied up on other deals."
Murray also dismissed the likelihood of Fleet pulling the trigger on another merger deal before BankBoston is fully integrated.
New England Powerhouse
The combined entity will service a projected 20 million retail customers throughout New England.
The bank's retail concentration in some areas will be so great that bank officials said Monday they will divest of roughly $13 billion in deposits in up to three separate transactions to ease help federal anti-trust concerns.
The deal will also result in a combined loss of up to 5,000 employees. Murray said many of those losses would likely be concentrated in the southern New England area where the greatest bank branch overlap will occur.
Gifford noted the combined entity will boast a array of financial service products few institutions can match, including a growing on-line banking service that will help drive future earnings.
He said increased market consolidation and the benefits of scale encouraged his board to pursue the deal, which reportedly was first raised last May.
"In my opinion, size alone doesn't do the job for customers, but some scale is necessary, Gifford said. "We can do it all and that's what we intend to do."
After the transaction, which will be accounted for as a pooling of interests, Fleet shareholders would own 62 percent of the combined company and BankBoston shareholders would own 38 percent.
Murray expects to remain chairman and chief executive of the combined company until Dec. 31, 2001, when Gifford become chief executive. A year later, he will also cede the position of chairman to Gifford and retire.
The deal, subject to regulatory approvals, is expected to close in the fourth quarter of this year, the companies said, adding that the combination is expected to boost earnings in the first year after completion.
Fleet shares slipped 2-9/16 Monday to close at 42-3/16 in trading on the New York Stock Exchange. BankBoston climbed 5/16 to close at 47-1/4.
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