MNC Financial Inc. said today it will receive a $200 million investment from NationsBank Corp. of Charlotte, N.C., in exchange for 17 million shares and an option to acquire the troubled Baltimore-based banking company within five years.
The minimum purchase price, if NationsBank were to exercise its option today, would be $14 a share, or almost $1.25 billion. But the price would rise if MNC's financial condition improves and if NationsBank delays exercising its option. Ultimately, the acquisition could be worth as much as $1.78 billion, MNC Chairman Alfred Lerner estimated.
The first step in the agreement calls for NationsBank, the country's fourth largest banking company, to pay $200 million for non-voting preferred stock that could be converted into 17 million shares, or about 16 percent of the company, by Sept. 30. That, however, could happen only if regulators are satisfied that NationsBank merely will be an investor in MNC, and will not exercise control over the company.
That investment would be used to help boost MNC's capital, which is money needed to cushion against possible losses.
Although NationsBank Chairman Hugh McColl, in a telephone press conference today, emphasized that the merger would take place only after his company is assured of MNC's health, Mr. Lerner expressed more certitude. "As far as I'm concerned, it's an option with a very large likelihood of becoming a merger," he said this morning, adding that two years is a reasonable guess of when the merger might take place, assuming stockholder and regulatory approval.
Today's announcement brings to an end months of rumors about a potential acquisition of MNC. The rumors, none of which were ever acknowledged by MNC officials, included almost a dozen banking companies in North Carolina, Florida, Virginia, Pennsylvania and New Jersey.
Many bank analysts predicted MNC was on the verge of collapse last year as a large portfolio of troubled real estate loans depleted earnings. To survive, MNC sold its profitable credit card subsidiary, MBNA Corp. of Wilmington, Del., to generate cash and avoid filing for protection from creditors under Chapter 11 of the federal bankruptcy laws.
MNC dropped from the 28th biggest to the 47th biggest bank holding company in the country in 1991 as it continued to shed subsidiaries in an effort to generate cash to cope with losses.
In recent quarters, MNC has improved. The banking company yesterday reported a $2 million second-quarter profit as its troubled real estate loans and other non-performing assets declined.
MNC executives had no details about what will happen to the company's 7,800 employees, although Mr. Lerner said he expected the company's president and Chief Executive Officer Frank P. Bramble, to remain at the helm of the company until the merger, and to remain with NationsBank afterward. Mr. Lerner said he will request a two-year extension of a deadline imposed by federal regulators that currently requires him to resign as chairman from either MNC or MBNA Corp., a Delaware-based credit card company that was spun off from MNC last year.
MNC had $16 billion in assets on June 30, and 241 branches in Maryland, Virginia and the District of Columbia. Its main subsidiaries are Maryland National Bank,based in Baltimore,and American Security Bank in Washington.
NationsBank has $110.7 billion in assets in more than 1,800 branches in nine states and the District of Columbia.
As an investment, MNC has taken stockholders on a roller-coaster ride that began in 1989, when its shares dropped from nearly $30 to a low of $2 early last year. Since then, MNC's shares have risen to more than $12 as speculation swirled about a possible takeover. In early trading today, the stock had fallen 62.5 cents a share to $10.625 on heavy volume.
Once today's proposed acquisition is consummated, only Mercantile Bankshares Corp. and Baltimore Bancorp would remain locally owned of the six major banking companies in Baltimore.
The purchase price of MNC will be an adjusted multiple of MNC's book value per share, beginning at 125 percent in 1993, rising to 150 percent by 1997. As part of the agreement, NationsBank agreed to purchase $200 million of MNC's new common equivalent securities by Sept. 30. The securities are convertible into about 17 million of MNC's common shares, resulting in an effective purchase price of $11.75 a share.
The merger agreement stipulates a minimum purchase price of $14 a share if the transaction occurs before Sept. 30, 1995, and a minimum price of $15 a share after that.
MNC, with a book value per share of $11.36 as of June 30, has 89 million shares outstanding. If the transaction were implemented today at 125 percent of book value, or $14.20 a share,its value would be about $1.3 billion.
For the second quarter, the bank holding company reported net income of $2 million, breakeven on a per-share basis, compared with a loss of $82.3 million, or 96 cents, in the year-ago quarter. For the first half,net income fell to $3.1 million,also breakeven on a per-share basis, from $71.7 million,or 78 cents,a year earlier.
The reserve for credit losses as of June 30 fell to $685.6 million from $831.1 million.