NEW YORK (CNNfn) - Mercantile Bancorporation Inc. and First Financial Bancorporation agreed Friday to combine their operations in a $169 million stock deal.
The acquisition of Iowa City, Iowa-based First Financial will significantly bolster Mercantile's market share position in the state, placing the $32 billion bank holding company in the number two spot. First Financial, the $550 million one-bank holding company for First National Bank Iowa, currently operates in ten locations in the Iowa City/Cedar Rapids corridor.
Under the arrangement, First Financial shareholders will receive 0.88 shares of Mercantile common stock for each share or share equivalent of First Financial common stock.
The merger, structured as a tax-free exchange, will be accounted for as a pooling of interests and is expected to close in the third quarter of 1998.
Under the deal, St. Louis, Ill.-based Mercantile has the option under certain conditions to acquire 19.9 percent of First Financial's issued and outstanding shares of common stock. Additionally, Mercantile may repurchase up to 10 percent of the shares issued in the transaction.
"We now have a prominent Iowa market presence, reaching from the Mississippi River to the state's western border," said W. Randolph Adams, Mercantile's senior executive vice president and chief administrative officer.
First Financial President and CEO Robert Sierk will serve as the chief executive of the combined organization's Iowa City banking franchise.
The merger is subject to the approval of First Financial shareholders and various regulatory authorities. Participants expect the merger to be accretive in its first year.
Mercantile (MTL) stock gained 15/16 at 53-3/4 on the New York Stock Exchange in afternoon trade. First Financial (FFBI) shares were up 1/4 at 27 at midday.