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Mercantile Bankshares (MRBK)
PNC to Buy Mercantile Bankshares in $6 billion Deal
Mercantile Bankshares shot up 21 percent Monday morning on news that PNC Financial Services Group Inc. will be purchasing the company in a deal worth roughly $6 billion. PNC will end up paying $47.24 per share of Mercantile, which is a 28 percent premium over Friday's closing price of $36.78. Analysts have noted that the deal is somewhat expensive; PNC will pay roughly 3.5 times Mercantile's book value, as compared to a normal range of 2.5 to 3 times in such deals. Is PNC making the right decision in acquiring Mercantile?
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The acquisition of Mercantile follows PNC's purchase of Rigg's Bank last year, which gave the company a footprint in the Washington D.C. area. Mercantile has operations in Maryland, Virginia, Delaware, D.C., and Southeastern Pennsylvania. The purchase of Mercantile will help PNC noticeably expand their presence in the areas around D.C. and Baltimore areas. PNC's operations are in Maryland, Virginia, Delaware, Pennsylvania, Kentucky, Ohio, D.C., Indiana and New Jersey. Mercantile is bringing $17 billion worth of assets to the table, while PNC has $94.9 billion in assets.
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The deal is expected to be completed in the first quarter of 2007, and PNC expect that they will end up seeing a decrease in earnings per share of 7 cents, or 1.2 percent in 2007. They expect the deal to lead to an increase in earnings per share for 2008. PNC expects to be able to cut around $108 million in costs by 2008 by removing redundant operations. In general, the footprints of the two banks should go together nicely, helping to give them real strength as a mid-Atlantic bank. The New Jersey-Washington area market that this deal will allow the combined company to focus on is a prime market with many affluent individuals. PNC has said the deal would make them the 11th largest bank in the nation based on deposits, and a top-10 U.S. bank holding company with respect to market capitalization.
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Analysts seem to agree that Mercantile is an attractive target and will help expand PNC's operations. The main debate seems to be about the price of the deal. An analyst from A.G. Edwards, David A. George, said "obviously Mercantile is a very attractive franchise." Noting that the deal comes at a price though, George said, "PNC is paying a full price at 18-and-a-half times the 2007 consensus earnings expectations for Mercantile." He further went on to say, "If they execute well over the next two to three years, it could prove to be an attractive investment," and went on to note the risk involved. So for now, the deal looks promising as the joint company will have a strong presence in an affluent market, it just remains to be seen if the execution will make this deal truly worth it for PNC.
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Profile |
The Company's principal activities are to provide commercial and retail banking services. The Company's services include normal banking services such as acceptance of demand, savings and time deposits. The Company also provides various types of loans as well as personal trust services, investment management services and investment advisory, financial and other services for corporate and institutional customers. As of 31-Dec-2002, the Company operated through 185 branches of its banking affiliates. On 12-Aug-2003, the Company acquired F&M Bancorp.
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