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PITTSBURGH-PNC Financial Services Group Inc. has signed a definitive agreement to acquire Baltimore-based Mercantile Bankshares Corp. for $47.24 per share or about $6 billion. The payment will consist of slightly more than $2.1 billion in cash and about 52.5 million shares of PNC stock.
Mercantile will merge into locally based PNC and its 240 branches re-flagged. The acquisition will take PNC's total number of locations to nearly 1,100 and significantly increase its presence in the Mid-Atlantic states, where it currently has 572 branches.
During a conference call, James Rohr, PNC's chairman and CEO, characterized the deal as a "perfect geographic and cultural fit." He added that "it accelerates PNC's expansion into one of the nation's most affluent and attractive regions." He previously had announced PNC's interest in expanding to the markets. A year ago, PNC acquired Washington, DC-based Riggs National Bank for $643 million.
Rohr cited the Baltimore and Washington, DC areas as particularly attractive. He said the acquisition adds Mercantile's "highly profitable commercial banking and wealth management franchise." Household incomes and projected population growth are higher in Mercantile's locations than PNC's, he pointed out.
Mercantile has $17 billion in assets. PNC has $94.9 billion in assets. On the basis of deposits, the combination should make PNC the 11th largest US bank, according to Rohr. It expects to cut more than $100 million in operating expenses by eliminating operational and administrative redundancies. Furthermore, PNC will realize a cost savings of about $12 million by scrapping its plan to build eight to 10 branches in the DC area.
Edward J. Kelly III, Mercantile's president and CEO, will be named a PNC vice chairman and two Mercantile directors will join the PNC board when the transaction is completed. The Mercantile transaction is expected to close in first quarter 2007 and add to PNC earnings per share in 2008. Rohr said it provides a 15% internal rate of return.
Shares of Mercantile hit a new high on yesterday when the deal was announced. MBRK closed on the Nasdaq at $44.94 per share, up 22.2% for the day, approaching the $47.24-per-share premium in the PNC agreement. MBRK shares closed last week at $36.78 a share. Shares of PNC on the NYSE yesterday went in the other direction to close at $70.40 per share, down nearly 4.4% for the day.
During the conference call, some Wall Street analysts suggested the price for Mercantile seemed high while others acknowledged it carried long-term strength. The PNC 52-week high of $74 per share occurred just five days ago and the 52-week low of $54.73 per share occurred Oct. 12, 2005.
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