Crestar Financial Corp., one of the region's largest independent banking companies, said yesterday that it has agreed to be acquired by Atlanta-based SunTrust Banks Inc. for $9.5 billion.
The deal will create the 10th-largest banking company in the country with $88 billion in assets, 3.3 million customers and 1,093 branches in six states, including Maryland, and the District of Columbia.
"This is going to create a powerful combination," said Richard G. Tilghman, Richmond-based Crestar's chairman and chief executive, who will retain his job and become vice chairman of SunTrust's board. "It creates the premier financial services franchise in the Southeast."
The deal is expected to be completed late this year, depending on shareholder and regulatory approval.
L. Phillip Humann, SunTrust's chairman and chief executive, said there will be few job cuts. He said it will not be a "blood-in-the-streets" acquisition because there is no overlap of branches.
"We think that [layoffs] can be worked out fairly easily with minimal pain," said Humann, who will remain chairman and chief executive after the deal is completed. Crestar's Baltimore-based Maryland banking region has 750 employees and 45 branches, including 10 on the Eastern Shore.
"It will really be a nonissue for Maryland," said Scott Wilfong, president of Crestar Bank's Maryland region. "There won't be any sort of market disruption."
The main reason the executives expect few job losses is that SunTrust's 697 branches are in Florida, Georgia, Tennessee and Alabama, and do not overlap with Crestar's 396 branches in Virginia, Washington and Maryland.
The acquisition comes on the heels of several huge banking mergers announced in April, including the $70 billion deal between New York's Citicorp and Travelers Group and the $59.3 billion union between Charlotte, N.C.-based NationsBank Corp.
and BankAmerica Corp. of San Francisco.
Analysts were surprised by the announcement because Crestar executives have been adamant about remaining independent, and SunTrust hasn't made a major acquisition in about a dozen years.
Harold R. Schroeder, a bank analyst at New York-based Keefe Bruyette & Woods Inc., said that in a morning conference call with company officials yesterday, analysts were dumbfounded.
"There was zero buzz in the room for the conference call; I think it was shock more than anything else," he said.
SunTrust's stock was pounded on the news, which is often the case for acquiring companies, falling $8.4375 to $79 a share. Shares of Crestar leaped $9.3125 to $73.3125.
Despite being caught off-guard, analysts said, they liked the match. They said both banks are well managed and profitable, and that the merger should create a regional powerhouse that can compete against larger banks such as NationsBank and First Union Corp.
"It creates a fairly formidable institution," said Frank J. Barkocy, a banking analyst and managing director at New York-based Josephthal & Co. "I think the fit is a good one both fundamentally and culturally."
Analysts said the deal would give Crestar more products and services and that it can win larger companies' loan business because of its hefty capital base. SunTrust would get a broader market with strong growth prospects and high-quality management, analysts said.
SunTrust has $61.4 billion in assets, compared with Crestar's $26.2 billion. SunTrust is paying about 4.3 times Crestar's book value, which analysts said is a generous, but fair, price.
Crestar stockholders would swap their shares for 0.96 shares of SunTrust common stock. Based on SunTrust's $87.44 closing price Friday, Crestar's common stock was valued at $83.94 a share.
"We think this a great deal for everyone," Humann said.
Humann said SunTrust shareholders also benefit from the banking company's ownership of 48.3 million shares of Coca-Cola Co., worth about $4 billion. Shares of Coke have meant stronger earnings for the bank, and are valued at $19.56 cents for every SunTrust share.
Crestar will operate as a wholly owned subsidiary of SunTrust and will retain its management and keep its name for two years. That means Maryland operations will be largely untouched, executives said.
Although it has been growing here, Crestar is not one of the largest banking companies in Baltimore. It ranks fifth in market share with 2.9 percent of the deposits in Baltimore, according to Danielson Associates Inc., a Rockville-based bank consulting company, well behind NationsBank's 22 percent.
Crestar has built its Baltimore operations with several acquisitions in recent years, including Loyola Capital Corp., in 1995; Laurel-based Citizens Bancorp. in 1996, and American National Bancorp Inc. in 1997.
Tilghman said he and Humann began talking casually in March about how they were running their banks.
Although Crestar was making plenty of money and taking business away from competitors, Tilghman was concerned about growth.
"As we were looking out in 1999 and beyond, it was becoming clear to us [our abilities] to do acquisitions in this market were going to be limited," he said. "As those conversations matured, it became clear that we had much more in common than we would have had with other financial operations."
Two weeks ago, Tilghman and Humann got together, and discussions about a deal became serious.
"We like their management; we like their management style," Tilghman said. "I think we are going to fit together like a hand in a glove."
Crestar Financial Corp
Headquarters: Richmond, Va.
Chief executive: Richard G. Tilghman
Employees: 9,300 (1,570 in Maryland)
Branches: 396 (120 in Maryland)
Assets: $26.2 billion
1997 net income: $309.81 million.
Stock price 7/20: $73.3125, up $9.3125
SunTrust Banks Inc.
Headquarters: Atlanta, Ga.
Chief executive: L. Phillip Humann
Assets: $61.4 billion
1997 net income: $667.25 million.
Stock price 7/20: $79, down $8.4375 cents
Pub Date: 7/21/98