Declining stock prices put U.S. Bank merger in jeopardy

Monday, Oct. 30, 2000 | 11:06 a.m.

U.S. Bancorp earnings

U.S. Bancorp reported third quarter operating earnings of $410.9 million or 55 cents per share vs. $409 million or 56 cents in the year-ago quarter.

Including after-tax merger-related charges and other special items, net income was $401.3 million or 54 cents per share vs. $396.4 million or 54 cents per share.

"Our third quarter results reflect our continuing efforts to become a customer-centered company that builds shareholder value through profitable revenue growth," said Chairman and Chief Executive John Grundhofer.

A 13 percent decline in their stock prices has some analysts speculating the planned merger of Firstar Corp. and U.S. Bancorp may be called off.

Valued at $21 billion when it was announced Oct. 4, the deal is now worth closer to $17 billion. Milwaukee-based Firstar agreed to pay 1.265 of its shares for each share of Minneapolis-based U.S. Bancorp.

The industry publication American Banker reported that the decline of Firstar stock has sparked speculation that U.S. Bancorp could have sold itself to another company for more money and, more importantly, for cash rather than stock.

U.S. Bancorp subsidiary U.S. Bank operates 43 branches in Nevada and has $1.27 billion in deposits as well as 400 employees in the state. Firstar does not operate in Nevada, indicating that if the merger occurs there will be little impact on U.S. Bank's Nevada operations.

"The deal certainly wasn't received well -- the marketplace is voting that way," American Express Financial Advisors analyst Steven Schroll told American Banker.

Firstar's stock fell when it reported third-quarter earnings that matched analysts' estimates but revealed sluggish revenue growth.

Investors say rumors have resurfaced that a large European banking company had made a cash offer to buy U.S. Bancorp last summer and may step up again with a new offer. The rumor says ABN Amro, the Dutch financial services giant, had expressed interest in expanding its retail presence in the Midwest and would be interested in buying U.S. Bancorp.

"There's a legitimate argument that a foreign buyer would make a better deal in the short term," Stein Roe & Farnham analyst Stephen Berman told American Banker.

U.S. Bancorp shareholders may appreciate a new offer for their company at a better price than Firstar is offering as U.S. Bancorp stock has slid 36 percent since last year after a string of disappointing profit reports, the resignations of key senior executives and a customer privacy scandal in which the bank was fined by Minnesota and other states.

Many investors and analysts, however, told American Banker they still support the Firstar-U.S. Bancorp merger.

"It has the potential to become a top-tier regional bank with double-digit revenue growth," Berman told American Banker.