Increasingly, we are seeing the business impact from Hurricane Katrina. A case in point came yesterday when Capital One Financial
You see, Hibernia is the largest bank in New Orleans, as well as the entire state of Louisiana. Out of a total of 321 branches, 60 are closed because of Katrina. The price revision on the deal came after Capital One had analyzed the damage.
As is the case with many acquisitions, there was a "material adverse change" clause in the Hibernia agreement. In fact, Capital One could have easily ditched the transaction. If such a thing happened, investors would wonder if Hibernia was in serious trouble.
However, Capital One realizes the strategic importance of teaming up with Hibernia. The deal provides more products and distribution for Capital One. It also bolsters its access to cheaper capital, a very important facet of its credit card business, as it tries to increase spreads.
What's more, the credit card industry is in the midst of rapid consolidation. Some of the recent deals include Bank of America's
As a sidebar, keep in mind that Hibernia has operations in other states, such as Texas. Actually, Texas is experiencing strong growth -- and was likely key for Capital One's continued interest in Hibernia.
Despite the lower purchase price and difficulties associated with Katrina's impact, it seems that both companies still stand to reap benefits from the merger -- and in this context, that's what's most relevant.
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Fool contributor Tom Taullidoes not own shares mentioned in this article.