Bank of Boston To Buy BayBanks for $2 Billion
BOSTON (AP) _ Bank of Boston Corp. agreed Tuesday to buy crosstown rival BayBanks Inc. for $2 billion, the latest in a series of big bank mergers that have come as the industry seeks to become more competitive.
The news comes one day after Chemical Banking Corp. and Chase Manhattan Corp. shareholders approved their banks’ $10 billion merger. It also follows combinations by two of the banks’ biggest competitors in New England.
Bank of Boston said the banks will cut about 2,000 jobs, or 8 percent of their combined work force, and close about 85 of their 511 full-service branches. Bank of Boston has about 18,000 employees, while BayBanks has about 6,500.
``That’s always the saddest part of something like this _ the reality of consolidation. There will be branch closings, there will be some job loss,″ said Charles K. Gifford, chairman and chief executive of Bank of Boston.
Analysts said the banks will complement each other. Bank of Boston _ the nation’s 19th largest bank _ has strong retail and international operations, while BayBanks is more consumer oriented with a heavy presence in the Boston area.
``I’m thrilled about it. It is as near to a perfect deal as one can get,″ said Thomas Hanley, an analyst with CS First Boston Inc. in New York.
The combination will create a bank with combined assets of more than $56 billion and more than 400 branches. Bank of Boston has assets of $45.2 billion and branches across the United States and in more than 24 countries. BayBanks has assets of $11.4 billion and branches three New England states, mostly in Massachussets.
The announcement is the latest twist in Bank of Boston’s efforts to merge with a big bank. The bank held unsuccessful merger talks with several banks this year. Those unsuccessful efforts led Ira Stepanian to resign as chairman in July. He was seen as an obstacle.
The failed merger attempts prompted speculation by analysts that the bank was ripe for a takeover, especially because of its lock on retail banking in Boston. But Hanley said the BayBanks acquisition could make it a difficult target.
``They made a very positive acquisition, and in so doing, they will maintain their independence even longer,″ Hanley said.
The merger, approved by both companies’ boards, is expected to be completed by the end of 1996′s second quarter.
Bank of Boston said the deal would result in a one-time charge of $140 million against 1996 earnings. But the consolidation would also trim expenses by about $190 million a year, or 11 percent, of the banks’ combined operating costs.
Under the deal, Bank of Boston will exchange nearly 2.2 shares of newly issued Bank of Boston shares for each share of BayBanks. The purchase price is about 2.2 times BayBanks’ book value and a 17 percent premium over its current stock price.
In New York Stock Exchange trading Tuesday, Bank of Boston shares fell $1.25 to $45.37 1/2. Baybanks shares rose 75 cents to $85 on the Nasdaq Stock Market. The deal was announced after financial markets closed.
BayBanks chairman William M. Crozier Jr. will be chairman of the merged company, which will be called BayBank of Boston, although overseas it will continue to do business under the Bank of Boston and Banco de Boston names. Gifford will be its CEO and president and will become chairman when Crozier retires at the end of 1998.
When asked why Bank of Boston had agreed to adopt the BayBanks name, Gifford said the bank wanted to capitalize on BayBanks recognition in the consumer market: ``I happen to believe that BayBanks is the premier consumer brand name in this area.″
A combination of slow economic growth, intense competition for depositors, and new federal laws easing restrictions on operating branches across state lines has driven more banks to combine forces.
Bank of Boston had failed in efforts to merge with such large banks as Corestates Financial Corp., Banc One Corp. and Mellon Bank Corp.
In October, the bank agreed to acquire the smaller Boston Bancorp in a deal worth an estimated $220 million. Boston Bancorp is the holding company for the South Boston Savings Bank, which has $1.3 billion in deposits and seven branches in Massachusetts
Bank of Boston’s New England competitors join forces.
Last month, Fleet Financial Group Inc. of Providence, R.I., and Hartford, Conn.-based Shawmut National Corp. _ Bank of Boston’s New England competitors _ completed a $4.5 billion combination last month. The bank is the biggest in New England and No. 10 in the nation.
Late Monday, Bank of Boston said it was selling 55 percent of its mortgage business to two venture capital firms for $146 million. The bank said it couldn’t afford to expand the business on its own.
Thomas H. Lee Co., a Boston firm known for buying companies and later selling them, and Madison Dearborn Partners, a Chicago venture capital firm, formed a joint venture with Bank of Boston to run the Florida-based mortgage company, called BancBoston Mortgage Corp.