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Merging interests: Worthen negotiations with Union nearing completion; Price Could Be $100 Million.

The biggest bank buy in Arkansas history could become a reality any day now.

The proposed sale of Union of Arkansas Corp. to Worthen Banking Corp. will approach the $100 million mark.

Insiders believe an announcement confirming the merger of the two Little Rock-based holding companies will come in the next several weeks. Some say negotiations are to be completed June 30. Even if the announcement is made then, the complicated transaction won't be completed until the end of the year.

Worthen's attempted acquisition involves three banks with assets of $760 million. They are Little Rock's Union National Bank of Arkansas, $634.4 million; Union National Bank of Texas at Austin, $97.5 million; and Union National Bank of Magnolia, $28 million.

Worthen also would acquire the 259,780-SF Union National Bank Building in downtown Little Rock and then possibly resell it. Worthen also might lease part of the 21-story office building. Officials are considering construction of a sky walk across Louisiana Street to link the buildings that house the two holding companies.

Top executives at Worthen and Union are declining interview requests until the announcement is made.

Officials at Worthen's primary rival, First Commercial Corp. of Little Rock, are equally eager to avoid comment. First Commercial was in the running to purchase Union. The bidding war ended when Worthen made its offer of nearly two times book value.

"Now, we'll have to see who made the right decision," says Alex Lieblong, a senior vice president in the Little Rock office of PaineWebber Inc. who follows Worthen and First Commercial, both publicly held corporations. "This will be a great deal for Worthen in my opinion. |It~ will start raising some eyebrows in the investment community ... Wall Street likes these intracity mergers."

The proposed merger would allow Worthen to again become the state's largest bank holding company.

Worthen National Bank of Arkansas also would overtake First Commercial Bank of Little Rock as the state's largest bank.

The deal would reshuffle the ownership picture at Worthen. In the most recent Worthen proxy, the four largest blocks of stock were held by:

* W.R. Stephens Trust -- 13.8 percent.

* Jack Stephens of Little Rock -- 11 percent.

* Warren Stephens Grantors Trust and Warren Amerine Stephens Trust No. 2 -- 8.2 percent.

* Abdullah Taha Bakhsh of Jeddah, Saudi Arabia -- 8.7 percent. He has since sold his holdings.

The family of Herbert McAdams II could convert its Union stock into as much as 5 million shares of Worthen stock. That estimate is based on a purchase price of $100 million and a closing stock price of $20 per share for Worthen stock.

Union's ownership is divided among McAdams, his son and two sons-in-law. The ownership consists of:

* Herbert McAdams, chairman emeritus and chief executive officer of the holding company and the Little Rock bank, 38.3 percent.

* H. Hall McAdams III, chairman and executive vice president of the holding company and its Little Rock and Texas banks, 23.2 percent.

* Robert Connor, president of the holding company and the Little Rock bank and chairman and CEO of Union Modern Mortgage Corp. of Little Rock, 19.3 percent.

* Walter DeRoeck, vice president of the holding company and president and CEO of the Texas bank, 19.2 percent.

Following a stock swap, the McAdams family could surpass the Stephens family in controlling the largest block of Worthen stock. Insiders say, though, the Stephens are determined to maintain a controlling interest.

A factor in the shifting ownership picture at Worthen is a stock swap for Stephens Diversified Leasing Inc., which has about $105 million in assets. Announced in March, the deal has yet to close. It will increase the Stephens' interest in Worthen.

Some banking analysts expect Worthen to acquire another McAdams property, Citizens Bancshares Corp., which owns Citizens Bank of Jonesboro. The bank has assets $173 million.

Worthen has a strong presence in northwest Arkansas through the Fayetteville-based Worthen National Bank of Northwest Arkansas. It has a strong presence in southwest Arkansas with Worthen National Bank of Hot Springs. It has a strong presence in southeast Arkansas with Worthen National Bank of Pine Bluff. Purchase of the Joneboro bank would give it a presence in the other region of the state.

The state-mandated floating cap rate of 15 percent should increase with the infusion of savings and loan deposits that have been purchased by Arkansas banks in recent months. Such an increase would allow Worthen to buy Citizens.

From The Sidelines

The proposed Worthen-Union merger isn't driven solely by Worthen's growth mode.

"This merger makes more sense than 99 percent of the mergers I see," says Lieblong. "You have a great opportunity to cut costs without cutting services. The economies of scale will make it a hell of a deal."

Annual cost savings resulting from the merger could range from $10 million to $14 million, analysts say.

Unfortunately, much of the savings would come from staff cuts as duplicated services are eliminated. Areas most likely to see layoffs are the trust, accounting, human resources, audit, loan review and marketing departments.

The ax would fall hardest in the data processing sector. That blow could be cushioned, however, by the expansion of Systematics Information Services Inc., the Alltel Corp. subsidiary based in Little Rock.

There are at least 14 overlapping branches. Some of the duplicate locations would be sold or leased for other purposes. For instance, the Worthen branch at University Avenue and Markham Street in Little Rock likely would be closed in favor of the neighboring Union branch in front of University Mall.

The situation near the intersection of Asher and University avenues is different. The Union and Worthen branches there are the largest volume branches for both banks. Neither location could accommodate the increased traffic if one branch were closed. Construction of a larger branch would be the most likely possibility.

Worthen also would save money by eliminating the salaries and perks of Union executives.

Market Share

"Market share is important because historically that equates with profitability," says Frank Anderson, a senior banking analyst with Little Rock's Stephens Inc.

The Worthen-Union combination would control more than one-third of the deposits and loans in Pulaski County. That would outpace First Commercial and Twin City Bank of North Little Rock, which have respective shares of 28 percent and 13 percent of the county's deposits and 30 percent and 16 percent of its loans.

Looking further down the line, are Little Rock's two largest banks destined to be taken over by out-of-state holding companies?

"Sooner or later, you're going to have other banks come in and look at buying Worthen or First Commercial," Lieblong says. "You have two good retail banks here, and it's only a matter of time before someone makes an offer you don't want to refuse.

"Both Worthen and First Commercial are attractive franchises."

Peter Tuz, vice president of research with Morgan Keegan & Co. of Memphis, Tenn., has a different view of Worthen and First Commercial.

"I don't think that's necessarily the case," Tuz says of possible acquisitions. "If banks can offer their shareholders a good return as an independent, they have every reason to try and stay independent."

Worthen and First Commercial compare favorably in three important categories: return on assets, return on equity and non-performing loans.

In the terms of ROA, in which anything above 1 percent is considered good, First Commercial registered 1.23 percent in the first quarter of 1992. Worthen had an ROA of 1.07 percent.

Fifteen percent and above is considered the benchmark for ROE.

During the first quarter, Worthen reported a 17.3 percent ROE. First Commercial had an ROE of 16.2 percent.

Three percent and below is considered good in the area of non-performing loans. First Commercial recorded 1.9 percent and Worthen 2.3 percent during the first quarter.

Tuz follows 30 banks in Arkansas, Alabama, Georgia, Kentucky, Louisiana, Mississippi, Missouri and Tennessee. The average for those financial institutions during the first quarter was 0.9 percent ROA, 14 percent ROE and 3.5 percent for non-performing loans.

Of course, the playing field changes considerably if the Worthen-Union deal becomes a reality. Will it close by next month?

"Both sides are tough negotiators," Anderson says. "This deal has been talked about for months, but sometimes all it takes is one small thing to screw up a big deal."
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Title Annotation:Worthen Banking Corp.; Union of Arkansas Corp.
Author:Waldon, George
Publication:Arkansas Business
Date:Jun 22, 1992
Words:1392
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