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The waiting game: Worthen's acquisition of Union could close in 60 days.

IF THERE ARE NO UNEXpected glitches, the acquisition of one of the largest bank corporations in Arkansas should be closed within 60 days.

Already it's been more than seven months since it was announced that Worthen Banking Corp. would acquire The Union of Arkansas Corp. Another 60 days is longer than anyone involved in the deal wants to wait.

The Department of Justice, the Office of the Comptroller of the Currency and the Securities and Exchange Commission have approved the sale.

Regulatory approval still must be secured from the Federal Reserve Board.

"I think it's unconscionable that they take their own time about doing things and don't care about the business decisions that need to be made," says Andrew Melton, executive vice president and chief financial officer of Worthen. "But they are our boss, so we do what they tell us to do."

Frank Anderson, senior banking analyst at Stephens Inc. of Little Rock, says the regulators must make a decision by March 12 regarding the merger of the two Little Rock-based holding companies.

"I think they have to approve it or disapprove it by that date," Anderson says. "If |regulators~ wait until the last minute, |Worthen and Union~ should be able to close the transaction by 30 days after that. But they hope to get it closed no later than March 31."

Curt Bradbury, chairman, president and chief executive officer of Worthen Banking Corp., is not as confident about a date for final approval.

"I'm not personally aware of any deadline that they impose on themselves," Bradbury says. "And if there is one, I'm sure that if their calendar is full, they can give themselves more time."

One observer, who asked to remain anonymous, says the slow approval could be politically motivated.

"The only thing that I think could be holding it up is the Stephens family's big ownership of Worthen," the source says. "The Stephens family's involvement may be part of it, but the main problem is the concentration of ownership.

"The people at Worthen, they seem to be just baffled. They haven't been verbally told that there is any concern or anything. It sounds like to me, though, that the regulators are just dragging their feet."

Worthen also is awaiting approval on the stock exchange acquisition of Stephens Diversified Leasing, which was announced in March. That transaction would increase the Worthen ownership by the Jack Stephens family and W.R. Stephens Trust to almost 30 percent.

Worthen wants to acquire SDL as a subsidiary of Worthen National Bank of Arkansas, so that it can be funded with lower cost deposits, Anderson says.

"I think the regulators have kind of said if you want to acquire it at the holding company level and then fund it with nondeposits, with commercial paper or any financing the holding company uses, then we would be much more amenable to that," Anderson says. "But if |Worthen~ does that, it defeats some of the purpose of acquiring it."

SDL May Be Causing Delay

Frank Tuz, a banking analyst at Morgan Keegan & Co. in Memphis, Tenn., agrees that the proposed deal for SDL could be holding up the Worthen-Union transaction.

"That brings up a lot of issues because the Stephens family has such a large position in Worthen," Tuz says. "The |SDL~ acquisition has gotten looked at with substantial scrutiny. Maybe because that is taking so long to close, that is having an impact on how long it is taking to close Union as well."

Worthen will pay Union stockholders 4.55 million shares of Worthen stock, according to the proxy statement issued in December by the two banks.

That makes the deal worth $114.32 million, based on Worthen's Feb. 9 closing price of 25 1/8, or more than twice Union's book value.

"Today, that is pretty much the norm," Anderson says of the price. "The reason Worthen can pay two times book, they should be able to realize large cost savings because they are across the street from each other.

"In fact, believe it or not, we are seeing transactions higher than that. Banc One |Corp., a Columbus, Ohio-based bank holding company~ has paid 2.2 and 2.4 times book value for some banks recently. And |two weeks ago~, I believe in New Jersey, one large bank paid 2.6 times book."

The deal is the biggest bank buy in Arkansas history.

Worthen expects to save $12.7 million in the first year in operating costs by consolidating some operations and eliminating duplicate expenses, according to the proxy. Each subsequent year, Worthen expects to save $14 million. Worthen anticipates nonrecurring expenses of less than $5 million.

"The opportunity is there for Worthen to go out and realize those cost savings," Anderson says. "But Worthen has got to go out and do it."

Worthen and Union will reduce their combined work force by 217 positions.

The proxy also reveals that Union's CEO, Herbert H. McAdams II, his son, H. Hall McAdams III and his two sons-in-law, Robert C. Connor and Walter A. DeRoeck, will own 25.45 percent of Worthen Banking Corp. after the merger.

Hall McAdams is chairman of Union, Connor is president and DeRoeck is vice president.

Legislation Pending

Worthen officials, as well as those at First Commercial Corp., the state's largest banking corporation until the Union transaction closes, have acknowledged they want to continue growing by acquisition.

But state law currently limits any corporation from controlling more than 15 percent of the state's deposits.

When the Union acquisition closes, Worthen will be within about $160 million of that limit.

There is a bill before the state Legislature that would raise the limit to 25 percent. It already has passed the House of Representatives and is in the Senate now.

"Without enlightened review of that issue by the Legislature and the people of Arkansas, they are going to force their home-grown banking companies to |expand to~ the outer regions of Texas, Mississippi and Tennessee," Bradbury says. "The way they are at the moment, that is how it is.

"If the law changes, our No. 1 strategic objectives would be in Arkansas. But if not, we will have to expand outside the state."

Back to Worthen's in-state expansion.

At the closing, Worthen will purchase property and the building Union owns at Fourth and Main streets from Herbert McAdams II for $750,000, the balance of the debt. The fair market value of the land and building is $800,000, according to the proxy.

In the deal, Worthen gains ownership of the 23-year-old, 21-story Union National Bank Building. It's across the street from Worthen's 24-story building.

What will Worthen do with it?

"|The Union building~ is a hell of a building," Bradbury says. "It's worth something. I think that in terms of real estate, you've got to take the long view. And in the long view, I think the future of Little Rock is pretty good. So, I'm happy to have it."

Melton says Worthen already has been contacted by Realtors and individuals interested in the building and in each of the branch locations that will be vacant after the sale.
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Title Annotation:Worthen Banking Corp.; Union of Arkansas Corp.
Author:Smith, David (American novelist)
Publication:Arkansas Business
Date:Feb 15, 1993
Words:1190
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