CHARLOTTE, N.C. -- NationsBank Corp. agreed to buy Montgomery Securities yesterday for $1.2 billion in cash and stock, as the fourth-biggest U.S. bank acquired a leading adviser to fast-growing companies.
NationsBank will pay 70 percent in cash and the rest in stock for Montgomery, last year's 10th-ranked stock underwriter. The companies decided to merge because "we were both in danger of losing customer flow," said James Hance Jr., vice chairman and chief financial officer at NationsBank.
It's the fourth time since April a major commercial bank bought a securities firm, in a continuing battle for customers with investment banks such as Merrill Lynch & Co. and Goldman Sachs & Co. LLP.
Corporations want advisers that can provide "one-stop shopping," Hance said, including access to debt and equity markets.
Earlier this month, BankAmerica Corp. agreed to buy Montgomery rival Robertson Stephens for $540 million while Swiss Bank Corp. said it would acquire Dillon, Read & Co. several weeks before. Bankers Trust New York Corp. agreed to purchase Baltimore's Alex. Brown Inc. in April.
With Wall Street's bull market now in its seventh year, commercial banks want a bigger piece of the lucrative underwriting business, taking advantage of new Federal Reserve rules that have let banks become more active in the securities business.
Shares of NationsBank fell 68.75 cents to close at $64.5625 on trading of 2.6 million shares, the average over the past six months, after falling about 4 percent last week, when word of a purchase reached the market. Montgomery is closely held.
NationsBank plans to give 67 Montgomery partners 5.3 million shares of NationsBank stock, worth some $348 million at current prices, which vests over three years.
NationsBank will create a $100 million pool in stock and cash to help keep key Montgomery employees who aren't partners from fleeing the firm.
Montgomery will become part of NationsBanc Capital Markets Inc., NationsBank's securities unit.
Montgomery Chairman Thomas Weisel will become chairman of the renamed NationsBanc Montgomery Securities unit.
The transaction, expected to close in October, will add 1 to 2 cents a share to 1998 earnings, analysts said.
NationsBank expects 1998 earnings of about $3.5 billion on from $14 billion in revenue, Hance said.
Montgomery will contribute about $900 million in revenue and between $35 million and $50 million in earnings, said Hance.
Montgomery earned $200 million before taxes on revenue of $705 million last year.
Some analysts said NationsBank was paying a high price for Montgomery.
"Banks are likely buying at the pricing top," said Nancy Bush, a bank analyst with Brown Bros., Harriman & Co.
Other analysts said the price was justifiable.
"They paid a hefty multiple, in terms of earnings," said Dillon, Read & Co. analyst Anthony Davis. "But it's a nice fit for them, filling in missing pieces and satisfying the needs for their corporate customers."
Analysts said the two companies are a good fit, both aggressive newcomers with reputations for making sharp deals.
Montgomery, founded in 1971, specializes in fast-growing industries such as health care, communications, technology and financial services. Its clients include Amgen Inc., Micron Technology Inc. and NBD Bancorp Inc.
Pub Date: 7/01/97