NEW YORK (CNNfn) - Wading into a consolidation fray that is fast reshaping America's banking landscape, Mercantile Bancorporation Inc. and Firstbank of Illinois Co. on Monday announced a $697 million merger that will create the leading Illinois bank lender outside the greater Chicago area.
Executives at Mercantile, a $30 billion bank holding company based in St. Louis, hailed the deal as a synergistic "pooling of interests" with the substantially smaller Firstbank, which operates 48 offices in 13 markets throughout Illinois and Missouri.
"With the Firstbank merger, Mercantile has the unparalleled opportunity to become the number one bank in outstate Illinois," Thomas Jacobsen, Mercantile's chairman, president and chief executive officer, said in a prepared statement.
Reduced to dollars and cents, the match-up pales in comparison with several precedent-shattering banking marriages announced in recent months.
Among the groundbreaking bids, First Union's planned $16.3 billion acquisition of Corestates of Philadelphia marks the largest banking merger in history - eclipsing even NationsBank Corp.'s pending $15.5 billion buyout of Barnett Banks.
The Mercantile-Firstbank merger, though relatively marginal by these standards, may carry symbolic weight as a beacon of regional banking synergies to come, analysts say.
"This is the type of merger that we've seen in the past and that we're going to see more of in the future," said Michael Schneider, an analyst with Standard & Poor's.
Under the proposed merger, Firstbank shareholders would receive .8308 shares of Mercantile common stock for each share of Firstbank common stock, based on Mercantile's closing price of $50.50 per share on Jan. 30. The merger, structured as a tax-free exchange of stock, is slated to close in the third quarter of 1998.
Firstbank also agreed to grant Mercantile an option to acquire 19.9 percent of its common stock outright, "exercisable under certain circumstances." Mercantile also reserves a right under the deal to repurchase up to 10 percent of the shares issued in the transaction.
The merger will effectively extend Mercantile's marketing reach into a nexus of urban and suburban communities in southern and central Illinois and in the St. Louis metropolitan area, where the bank has an existing franchise in Benton and Marion.
On Monday, shares of Firstbank (FBIC) jumped 3-5/8 to 41-5/8 in Nasdaq trading while Mercantile stock (MTL) rose 5/8 to 51-1/8 on the New York Stock Exchange.