Expert Says Hostile Takeovers of Banks Will Remain Rarities
Kutler, Jeffrey, American Banker
Expert Says Hostile Takeovers Of Banks Will Remain Rarities
Hostile attempts to take over banks will remain rare despite bankers' growing fears that they are an inevitable consequence of the rampant merger mentality, a merger and acquisition specialist said last week.
"You won't see hostile takeovers in this business. It is too people-oriented and too much involved in customer interaction for hostile takeovers to become common,' John H. Shain, president of Littlewood, Shain & Co., Wayne, Pa., told a group of Philadelphia bankers.
Mr. Shain, a noted bank operations expert who has expanded into merger consulting for banks across the country, maintained that a bank's dependence on customer relationships would generate acquisition bids only from friendly institutions who understand how their corporate cultures will mesh.
He added that these "people aspects' are more critical to a merger's success than the notion of consolidating offices or data processing centers. Many merged institutions have tried these ideas but failed in their attempt to cut costs.
"You saw it here in Philadelphia when Provident National Bank merged with Pittsburgh National, creating PNC Financial Corp. [in 1983]. PNC is one of the best capitalized, most profitable banks in the country, and it basically left Provident alone to do its thing.
"With only a few of their operations combined, last year Provident contributed 1.5% on assets and a 22% return on equity to PNC's bottom line,' Mr. Shain said in a speech to the Bank Automation Association of the Delaware Valley.
He contrasted the PNC success story with Mellon Bank Corp.'s concurrent acquisition of Girard Bank in Philadelphia. That deal was not a hostile takeover, either, but Girard was subsumed as Mellon Bank (East) in a search for statewide consolidation and synergy. In 1985, Mellon Bank (East) had no net operating income to contribute to the parent's sagging earnings.
Because "it's a matter of culture,' Mr. Shain said, rational analysis will be seen as a more constructive means to an end than a hostile takeover.
Although Mr. Shain's message sounded reassuring, it runs counter to a spreading assumption that hostile bank bids will become commonplace.
Chase Manhattan Corp. has proposed that its shareholders stagger the terms of directors, require a 75% vote to remove directors, and adopt "fair price' principles--all designed to discourage an unwanted acquirer.
The Bank of New York Co. similarly added "poison pill' provisions to its bylaws a year ago.
Hostile takeovers in banking until recently were nonexistent, and most that were tried were rebuffed. Observers attribute these outcomes to the industry's heritage of tight regulation and high degree of leverage. For example, a leveraged buyout, in which a purchaser borrows against the acquired company's sellable assets, seemed difficult to carry out.
Yet banks' market values have been appreciating in the bull market and attracting favorable notice from institutional investors. Most believe that fullscale interstate banking is near, and some target banks have sold to friendly bidders at two or more times their book values. …