Bank Sellers Told to Weigh Buyer's Stock, Not Price Tag

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Investment bankers are delivering a new -- and surprising -- message to potential sellers of banks: Do not focus on the deal price.

With many banks' stocks languishing near their 52-week lows, investment bankers say sellers instead should concentrate on the upside potential in a buyer's shares. That involves the so-called fixed-share-exchange ratio, the number that dictates how much of the buyer's stock that shareholders will receive for each share of the seller. If a seller believes its buyer's stock is undervalued, swallowing a lower premium might be a little easier.

"You should be happy with a lower deal price and more ownership of your buyer," said Michael E. Martin, managing director at Credit Suisse First Boston Corp. in New York.

That may have been evident in One Valley's announcement Monday to sell BB&T Corp. The stock deal, valued at $32.20 a share -- or a 28% premium to One Valley's closing price on Feb. 4, falls far short of One Valley's 52-week high of $40.52 in June 1999.

In an analyst conference call, the Charleston, W.Va., banking company mentioned upside potential as a mitigating factor to the low premium.

Unlike the merger mania days of 1997 and 1998, a buyer's market rules, with sellers forced to mull over a lower bar for deal prices, drawing them -- however reluctantly -- to the bargaining table.

And to entice sellers, investment bankers are now couching the benefits in terms of shares to be had.

Rather than price, sellers should focus on the fixed-share-exchange ratio when considering a deal, especially if they believe the buyer's stock is undervalued, analysts said.

Still, one community banker said it is a difficult argument for small banks to swallow and may not be a great selling point. Don Stricklin, president and chief executive officer of Texas United Bancshares in La Grange, said sellers "have to seriously look at the prospects of the buyer."

In recent months, investment bankers have used this argument in the boardrooms of small banks, with little success.

Robert Rogowski, principal at Columbia Financial Advisers Inc. in Seattle, acknowledged that he couldn't persuade two banks to take a lesser price for more shares of their buyer.

Added Nick Barbarine, senior vice president of Hovde Financial Inc. in Washington: "It is difficult to convince a board to take a lesser price."

One banking company that may benefit from having accepted more shares is First Place Financial Corp. in Farmington, N.M., which last month sold itself to San Francisco-based Wells Fargo & Co. for roughly $200 million of stock, Mr. Barbarine said.

Based on the deal's fixed-exchange ratio, the transaction could actually be worth about $250 million if Wells' stock price hits Wall Street's 12-month projection of about $50 per share, he said. BB&T's stock deal, valued at $1.2 billion, is 13 times projected earnings, well below the average multiple of 18. …