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Mellon rejects $24B bid
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April 22, 1998: 3:32 p.m. ET
Tells Bank of New York it's not for sale, but analysts say chess game isn't over
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NEW YORK (CNNfn) - Mellon Bank Corp. on Wednesday spurned an unsolicited $24 billion takeover bid by The Bank of New York Co. despite a hefty 28 percent premium for shareholders - but many analysts say that doesn't mean the bidding is over yet.
The deal, capping several years of talks between the two sides, would represent the latest phase of industry consolidation, uniting two aggressive, growth-oriented banks to create the nation's 10th-largest bank.
As part of Wednesday's offer, Mellon stockholders would receive 1.4 Bank of New York shares for each Mellon share tendered. The deal would be tax-free for shareholders and accounted for as a pooling of interests.
Based on Tuesday's closing price for Bank of New York shares, the bid amounts to $89.25 for each Mellon share.
The deal would help bolster earnings in years to come and would lead to about $800 million in annual pretax savings, Bank of New York said in a filing with the Securities and Exchange Commission Wednesday.
But Mellon, which has spurned suitors in the past, reiterated that it is determined to remain independent - even though many analysts say it's a prime takeover target.
"We are not in negotiations with Bank of New York or anyone else. We are not interested in pursuing a transaction -- we are not for sale," said Mellon Chairman and Chief Executive Officer Frank Cahouet in a statement.
However, analysts said this isn't the end of the road either for the bid from Bank of New York or any other suitor.
"It doesn't mean something can't be orchestrated behind the scenes," said George Bicher, an analyst with BT Alex Brown. "This will be decided in the court of public opinion."
"This will be a soap opera, with no one writing the script - stay tuned," added Bicher.
BancOne Corp (ONE), First Union Corp (FTU), and NationsBank Corp. (NB) are among possible suitors as well, said Ronald Mandle, an analyst with Sanford Bernstein.
Analyst Katrina Blecher of Gruntal & Co. said Mellon executives can't forget they work for shareholders, some of whom could step forward in favor of Bank of New York's bid. (133K WAV) or (133K AIFF)
Meanwhile, Thomas Renyi, chairman and chief executive of Bank of New York, said in a letter to Cahouet dated April 22 that his bank is only interested in a "consensual transaction."
Bank of New York may have seen a rejection coming - and tried to circumvent resistance of Cahouet by going straight to Mellon's board - a tactic known in the industry lingo as a "bear hug" takeover.
"Since you declined to meet with me, I thought it appropriate to follow up with this letter for consideration by your board of directors," said Renyi in his letter.
Analysts said the "bear hug" approach -- rather than an outright tender offer -- points to the difficulty of hostile bid in service industries.
Another sticking point is Pennsylvania law, which allows employees to vote on takeover attempts. Blecher said the buyout could lead to a 12 percent decline in the employee base at the combined company.
To make the deal more palatable, Bank of New York said it wants to name Cahouet as chairman of the combined company through 1998.
But after that, when Cahouet is expected to step down as Mellon's chairman, Renyi would take the reins. .
Mellon's CEO-elect Martin McGuinn would become president of the combined company, while Mellon President Christopher Condron would be a vice-chairman.
The buyout comes just as both banks have been on a buying binge in recent months. Last year, Mellon lost a bid for Philadelphia-based CoreStates Financial Corp. to First Union Corp.
And last week, Bank of New York scrapped plans to boost its stake in State Street Corp. after state regulators raised objections.
Shares of Mellon (MEL) were up 7-15/16 at 77-13/16 in heavy trading Wednesday. Bank of New York's stock (BK) fell 1-1/2 to 62-1/4
Other bank stocks rode along higher as well, with Northern Trust Corp (NTRS) rising 4-1/4 to 77-15/16, Fleet Financial Group Inc.(FLT) climbing 2-1/16 to 89-15/16, and PNC Bank Corp. (PNB) gaining 2-3/8 to 62-3/4. 
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