12:44 p.m.
PITTSBURGH (AP) — PNC Financial Services Group Inc., one of the nation’s largest regional banks, said today it would buy Baltimore bank company Mercantile Bankshares Corp. for about $6 billion as part of an expansion plan targeting wealthy, fast-growing markets.
The Pittsburgh company said the cash-and-stock deal will further its growth along the affluent New Jersey-to-Washington corridor, adding hundreds of new branches in Maryland, the District of Columbia, Virginia and Delaware.
“I think it’s fairly self-evident that the combination of Mercantile and PNC will be a mid-Atlantic powerhouse,” said James E. Rohr, PNC’s chairman and chief executive.
The regional footprints of the two banks fit well together, he told analysts during a conference call. “With their 240 branches, PNC will have market coverage of the wealthy East Coast corridor from the Hudson River to the Potomac,” Mr. Rohr said.
The transaction will make PNC the second-largest bank by deposit market share in Maryland and Delaware and is expected to accelerate growth in Washington and Delaware, according to Mr. Rohr.
Last year, PNC got a foothold in the attractive Washington market with its $643 million acquisition of Riggs Bank, which was headquartered in the nation’s capital.
Based on PNC’s closing stock price of $73.60 Friday, the deal values shares of Mercantile at $47.24 apiece, a 28.4 percent premium over its closing price of $36.78 Friday.
Mercantile Bankshares shares rose $7.63, or 21 percent, to $44.41 in morning trading on the Nasdaq Stock Market. PNC shares fell $4.63, or 6.3 percent, to $68.97 in morning trading on the New York Stock Exchange.
Mercantile shareholders will receive a combination of 52.5 million shares of PNC stock and $2.13 billion in cash. Under the deal, each Mercantile share will be exchanged for 0.4184 shares of PNC stock and $16.45 in cash.
PNC expects the deal, due to close in the first quarter of 2007, to add to earnings per share in 2008.
David A. George, an analyst at A.G. Edwards, said “obviously Mercantile is a very attractive franchise” that will improve the growth potential of PNC’s regional banking operation.
“However, it does come at a price,” he said.
“If they execute well over the next two to three years, it could prove to be an attractive investment,” Mr. George said. “But there’s execution risk.”
Two Mercantile directors will join the board of the combined company. Mercantile Chairman, President and Chief Executive Edward J. Kelly III will be named a PNC vice chairman when the deal is completed.
PNC has $94.9 billion in assets and more than 2.5 million consumer and small business customers in Pennsylvania, New Jersey, Maryland, Virginia, Delaware, Ohio, Kentucky, Indiana and the District of Columbia.
Mercantile has $17 billion in assets and offers services through 240 offices in Maryland, Virginia, the District of Columbia, Delaware and southeastern Pennsylvania.
PNC said the deal for Mercantile should make PNC a top-10 U.S. bank holding company by market capitalization and the 11th largest U.S. bank by deposits.
It said the deal should enable it to cut more than $100 million of operating expenses through the elimination of operational and administrative redundancies.
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