Merc's investors quickly OK sale

About 96% of shares voted for PNC deal

February 28, 2007|By Paul Adams | Paul Adams,SUN REPORTER

Herbert M. Katzenberg, a Mercantile Bankshares shareholder and trustee emeritus of the Baltimore Community Foundation, knew before he stepped up to the microphone yesterday that he had little chance of stopping the bank's sale to Pittsburgh-based PNC Financial Services Group.

It might be good for shareholders, he conceded to those attending Mercantile's special meeting to consider the $6 billion deal. But he countered that it won't be good for Baltimore, which over the years has relied on Mercantile's local executives for help in everything from the redevelopment of the Inner Harbor to financial support for the Baltimore Symphony Orchestra.

"For the good of Baltimore City, vote against the merger," he said, eliciting scattered applause from the roughly 100 shareholders and bank employees assembled at the Radisson Plaza Lord Baltimore Hotel.

Minutes later, sentimentality gave way to financial reality when Mercantile executives revealed that nearly 96 percent of the bank's shares were voted for the merger, which will pay shareholders 28 percent above the stock price when the sale was announced.

Katzenberg's speech included, the meeting took less than 30 minutes, putting Mercantile another step closer to joining the ranks of Baltimore-based banks sold to out-of-state buyers as part of a decades-long consolidation trend. Mercantile was one of the last holdouts, steadfastly maintaining its legacy dating back to the Civil War as caretaker of Baltimore's blue-blood money.

"Obviously, Mercantile has had a very rich history," said Edward J. Kelly III, Mercantile's chairman and chief executive. "It's not an easy decision, as I've said before. But on balance we felt it was the right one; principally for the stockholders, but also for the other constituents involved."

Other than Katzenberg, only a few shareholders disagreed with Kelly yesterday. The reasons given had mostly to do with concerns that shareholders will incur capital gains taxes because part of the purchase price is in cash. Shareholders are poised to get 0.4184 shares of PNC stock and $16.45 in cash for every Mercantile share they own. The cash portion represents about a third of the value to shareholders.

"At the end of the day, the premium even on the after-tax basis - given that cash is only a third - is still very, very substantial," Kelly said in an interview after the meeting.

PNC hasn't said how many of Mercantile's 3,600 employees might lose their jobs as part of acquisition-related cost savings. Kelly said yesterday that only certain back-office employees will be affected, while all of those who face customers day to day will remain. There is little overlap between the banks' retail operations.

"I don't know they [PNC] have any plans at all with respect to Baltimore," he said, referring to the company's downtown headquarters and branches. "Essentially, all of the people in that building are basically going to remain in that building, so I don't think people are going to see any dramatic change in terms of ... the physical plant or, frankly, the faces they see every day."

Many of the bank's senior executives have employment contracts with PNC, and Kelly said substantially all of the executives who lead the bank's network of affiliates are expected to stay in charge of their respective regions.

PNC officials said they were pleased with the outcome of yesterday's vote. "We're expecting an early March closing, and then our focus will be on doing this right for the customers," spokesman Brian Goerke said.

PNC has said that little will change immediately after the deal closes. Mercantile signs, letterhead and accounts will stay the same while PNC converts its systems and trains frontline bank employees on new procedures and policies. PNC expects to take down Mercantile signs and complete the transition to its own systems this September.

With $17 billion in assets and a network of 240 offices, Mercantile is PNC's largest acquisition.

PNC has committed to giving $25 million to a Mercantile fund that is part of the Baltimore Community Foundation, which lists Katzenberg as a founding trustee.

The shareholder vote coincided with PNC's announcement yesterday that it will underwrite lower ticket prices for current and new subscribers to the BSO as part of a five-year, $1 million gift to the organization.

PNC has not specified Kelly's role in the merged bank. He will become vice chairman of PNC, with an employment contract that includes reimbursing him for moving costs if he moves to Washington, which PNC entered in a major way in 2005 by purchasing Riggs National Corp. Kelly, who has led Mercantile for about 5 1/2 years, said he has no plans to leave Baltimore.

The Federal Reserve approved Mercantile's sale to PNC this month, and regulators in Maryland signed off shortly afterward. Regulators in Delaware, where Mercantile has branches, are expected to rule within the next few weeks.

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