Today was a down day for many stocks, and SunTrust
The deal is worth just shy of $7 billion, payable in a combination of cash and stock. National Commerce will increase SunTrust's presence in the Southeastern market, where it will be No. 3 behind Bank of America
It's no secret that banks often take an acquisitive stance on expansion. Though acquisition madness might have abated recently, it wasn't that long ago that Bank of America returned to its acquiring ways and snapped up FleetBoston for a whopping $47 billion. SunTrust, on the other hand, hasn't made a bid for another bank since it lost its bid for Wachovia to First Union in 2001.
Investors are leery over the thought that SunTrust's purchase of National Commerce is too expensive with too little chance for return; the price represents a 5% premium to National Commerce's stock Friday. However, SunTrust said that the acquisition of National Commerce will be cash accretive to earnings immediately. Furthermore, the merger will facilitate cost reductions, with 60% of savings recognized in 2005, and the entirety beginning in 2006.
However, in its conference call (transcript courtesy of CCBN StreetEvents), SunTrust said that the acquisition is "not about size," and that while it generally likes "mergers that either let us expand geographically into markets with strong demographics and high growth characteristics or that enhance our business capabilities. This merger is the best of both."
Among the initiatives in which National Commerce offers expertise include in-store banking and de novo branching. National Commerce has agreements that put its branches in a variety of retail stores; you may have seen such branches in your local grocer or Wal-Mart
For today, investors cast a dour eye on the deal; even National Commerce slid in recent trading. Despite the geography and interesting business capabilities National Commerce brings to SunTrust, investors remained wary that the merger was, in fact, the best of both worlds.
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Alyce Lomax does not own shares of any of the companies mentioned.