KeyCorp- Society deal finds few fans
USA TODAY - Tuesday, October 5, 1993
Author: Paul Wiseman
KeyCorp and Society announced a $7.8 billion merger Monday that will create a coast-to-coast banking power.
But some analysts wondered whether the deal will pay off for shareholders.
No question, Albany's KeyCorp and Cleveland's Society are a formidable team. The merged company will have assets of $58 billion, making it the No. 10 U.S. bank .
They say they mesh well. KeyCorp operates in the Northeast and Northwest; Society in the Midwest. So together, they stretch across most of the northern USA, operating branches in 13 states from Maine to Michigan to Alaska. Society lends to big businesses. KeyCorp focuses on consumers and small firms. Society is known for its investment products. KeyCorp has a vast branch system where those products can be sold.
The merger also solves a big problem for KeyCorp CEO Victor Riley, 62: finding a successor. Riley recruited two would-be heirs, but neither worked out.
Under the merger agreement, Riley will be CEO of the combined company until Dec. 31, 1995, when he will be succeeded by Society CEO Robert Gillespie, 49. Gillespie will be president and chief operating officer until then. Riley also will be chairman through 1998.
KeyCorp and Society were careful to ensure a "merger of equals." The merged company will take the KeyCorp name but will be based in Cleveland.
Both stocks rose early Monday, but KeyCorp ended the day down 1 to $37 1/2; Society was unchanged at $32 1/2. Investors were wary because:
- There was no takeover premium. In a merger of equals, neither bank pays for the other; they simply merge. KeyCorp shareholders will get 1.205 shares of the merged company for each of their shares; Society 's will get one share for each of their shares. That's disappointing for investors who had hoped for a big takeover payoff. Both banks have been mentioned as takeover targets. But Riley and Gillespie say they received no other offers for their banks .
- There are no huge savings. Wall Street applauds mergers of equals when they're between banks in the same market. Such "in-market" mergers allow banks to close neighboring branches - and reap huge savings. But Society and KeyCorp operate in different places, so there will be no big savings - though they will save more than $80 million a year by early 1995 by combining some operations.
To make the merger pay off, the banks must generate more business together than they would have separately. "They've given up a potential takeover premium down the road," says Chicago Corp. analyst Kenneth Puglisi. "They've got to make this work."
A merger of equals
KeyCorp (KEY) '90 '91 '92 '93 est. Total Assets (billions) $16.6 $21.9 $23.7 $32(1) Net income (millions) $148 $188 $246 $385 Earnings per share $2.31 $2.57 $3.17 $3.81 52-wk. hi/lo: 46/32 3/4 P-E: 11 Mon. price: $37 1/2, -1
Society Corp ( SCY ) '90 '91 '92 `93 est. Total Assets (billions) $15.1 $15.4 $25.0 $25.9(1) Net income (millions) $61.5 $76.5 $301 $386 Earnings per share $0.49 $0.61 $2.51 $3.30 52-wk. hi/lo: 37 1/4 / 28 1/8 P-E: 11 Mon. price: $32 1/2, unch.
Earnings estimate: Zachs Investment Research; Society assets, 1990-1992: Value Line; P-E based on trailing 12-mo. earnings 1 - as of June 30 USA TODAY research Caption: PHOTO,color
VICTOR RILEY: Plan set for KeyCorp CEO's successor.
Memo: USA TODAY'S MARKET SCOREBOARD; INDUSTRY SPOTLIGHT: A DAILY LOOK AT A COMPANY, INDUSTRY OR MARKET TREND; See info box at end of text
Edition: FINAL
Section: MONEY
Page: 3B
Index Terms: KEYCORP ; SOCIETY ; Spotlight; MERGER ; CORPORATION
Record Number: 421848
Copyright 1993 Gannett Co., Inc. All rights reserved.
