ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, September 18, 1996 TAG: 9609180111
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
DATELINE: RICHMOND
SOURCE: Bloomberg Business News
Crestar Financial Corp. plans to buy Citizens Bancorp for about $774 million in stock, creating the biggest bank in the nation's capital as larger rivals battle for market share.
The purchase of Laurel, Md.,-based Citizens will give Crestar more than 100 additional branches from Washington to Baltimore and boost its total size by more than one-fifth. The purchase will be costly for Citizens' employees, as Crestar plans to close as many as half its branches and cut 600 of 2,000 jobs.
Some analysts said Crestar is paying so much it could face pressure to sell out to another bank as early as next year.
``They could be effectively putting themselves into play,'' said Thomas Hanley, a UBS Securities banking analyst who, like other analysts, has long listed Crestar as a takeover target. ``I don't think their shareholders will be happy with this at all.''
The acquisition, announced Monday, will eat into profits initially and force the bank to postpone buying back stock to boost earnings, he said.
For Crestar, the purchase gives it No. 1 market share in the Washington-to-Baltimore area, the fourth-largest metropolitan region in the U.S.
Citizens ``is an institution we have long sought,'' said Crestar chairman Richard Tilghman.
Other large banks, such as Wachovia Corp., Suntrust Banks Inc. and PNC Bank Corp. want to move into Washington's lucrative suburbs, and Crestar could be a good foot in the door, said Hanley. Crestar could fetch $73 a share in a takeover, and Winston-Salem, N.C.,-based Wachovia is the most likely buyer, Hanley said. Crestar management, for now, is acting more like hunter than target. Growing through acquisition ``demonstrates management's lack of interest in selling out to a larger competitor,'' said Carole Berger of Salomon Brothers Research. Crestar's expansion into the affluent southern Maryland region adds to its attractiveness as a takeover target, Berger said.
Crestar said it will pay 0.835 of a share, valued at $51.25, for each Citizens share.
The transaction will be expensive for Crestar at first. The bank will take a pretax charge of $43 million, or 50 cents a share, in the first quarter to cover merger costs. Overall, Tilghman said, the purchase will reduce Crestar's first-quarter 1997 earnings by 12 cents a share, or 2.2 percent.
The purchase, the bank said, will begin adding to profits as early as the third quarter of 1997, as Crestar cuts costs and adds revenue.
The transaction will be a tax-free exchange of shares, and it was accounted as a pooling of interests, which reduces the impact on a company's earnings per share.
Tilghman said Crestar could reduce Citizens' costs by 45 percent by eliminating redundant operations and introducing branch automation.
The acquisition of Citizens would boost Crestar's assets by 23 percent to $22.7 billion and will make it the second-largest bank in Maryland.
Crestar has 379 branches in Virginia, Washington and Maryland, assets of $18.5 billion and deposits of $12.8 billion. Citizens has $3.1 billion in deposits and total loans of $2.3 billion.
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