First Union to purchase Signet bank Move will strengthen First Union position in Maryland, Virginia

Price of deal is $3.3 billion

Acquisition would be one of most expensive in banking history

July 21, 1997|By Bill Atkinson | Bill Atkinson,SUN STAFF

First Union Corp., the nation's sixth largest banking company, has agreed to buy Richmond-based Signet Banking Corp. for $3.3 billion, according to industry sources last night.

Details of the merger, which would be one of the most expensive in banking history, were sketchy. But Signet, which has $12 billion in assets, has been struggling for more than a year and a half and just recently announced a company-wide restructuring.

Executives of First Union could not be reached for comment. A spokesman for Signet declined to confirm or deny that a deal had been struck. "It is not a good time for me to say anything," said Kitty Griffith, the spokeswoman.

According to sources yesterday, First Union will exchange 0.55 of each of its shares, which are worth $53.5875 based on its closing stock price on Friday, for each share of Signet. That would represent a 46 percent premium over Signet's closing price of $36.6875 Friday. First Union's shares closed Friday at $97.4375.

The rumored deal would give First Union a far larger piece of the Maryland and Virginia markets, putting it on nearly equal footing with rivals NationsBank Corp. and Crestar Financial Corp.

There has been a heated battle for market share in Virginia and Maryland. Just last month Wachovia Corp. of Winston-Salem agreed to acquire Richmond-based Central Fidelity Banks Ins. for $2.29 billion in stock. That deal will create the largest bank in Virginia.

The acquisition of Signet is considered in part a defensive move to stay abreast of the competition in Virginia and Maryland.

Signet, the 52nd largest bank in the country, has 233 branches in Virginia, Maryland and the District of Columbia, with 83 in the Baltimore area. The company employs 1,085 workers in the Baltimore region.

Charlotte-based First Union has $143 billion in assets and operations in 12 states and the District of Columbia. It has 55 branches in Maryland,28 in the metropolitan Baltimore area, $1.8 billion in assets here and employs 325 people.

Like NationsBank, also based in Charlotte, First Union has pursued an aggressive acquisition strategy, amassing large chunks of markets in states on the East Coast. It acquired Newark, N.J.-based First Fidelity Bancorp. in January 1996, creating a mega-bank with offices in 12 states, including Maryland.

First Fidelity acquired Baltimore Bancorp, parent company of the Bank of Baltimore, in November 1994, and Household Bank FSB's branches in the area in 1995.

Signet had been the darling of Wall Street analysts two years ago as it built one of the fastest-growing credit card companies in the country, developed an innovative strategy designed to place it on the cutting edge of banking. And its stock was hot, rising 65 percent in 1995.

But at a time when the rest of the banking industry was producing record earnings, Signet began sputtering about 18 months ago.

Earnings have been lackluster for more than a year, problems with some consumer loans have increased and expenses remain high.

Signet said on June 3 that it would cut 1,135 jobs -- 25 percent of its work force -- and sell 39 branches as part of a sweeping restructuring designed to cut costs and revive anemic earnings.

Signet's chairman and chief executive officer, Malcolm S. McDonald, said the restructuring of the company was necessary to improve the company's profitability.

"To succeed in business, we must serve the needs of customers and shareholders," McDonald said. "We have created a blueprint for our future which does just that. Through these changes, Signet will achieve significantly increased profitability."

Signet revamped the company so it could offer a multitude of products through the mail rather than through branches.

Executives with the company said they hoped to turn Signet into an institution that marketed student loans, home equity lines of credit, credit cards, certificates of deposit and other products through the mail, the computer and over the telephone. Loans to large corporations will be made almost anywhere in the country in face-to-face meetings with borrowers.

"We are not limited by our geography, only by our capabilities," said McDonald in a recent interview with the Sun.

Analysts were not completely sold on the strategy, however.

"A lot of people are betting that either they implement this and ZTC get their act in gear, or their only recourse is that they've got to sell," said David M. West, a bank analyst at Davenport & Co., a Richmond, Va.-based brokerage firm.

"They just have to stay competitive, otherwise they will be taken out by some larger bank," added Joan T. Goodman, an analyst with a unit in Chicago of Donaldson, Lufkin & Jenrette.

While they acknowledge that their performance could be better, Signet's top brass had said the bank would become stronger and more profitable in time.

Signet, however, has long been rumored as a takeover candidate.

Last Sept. 27, it denied that it was in merger discussions after rumors drove its stock price up. Industry analysts at the time speculated that First Union was eyeing Signet.

Pub Date: 7/21/97

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