Corestates-Bank of Boston Merger Faces Uphill Battle

Strategic Insights -

The proposed merger between Corestates Financial Corporation and the Bank of Boston Corporation has been met with skepticism by investors and analysts, who are concerned about the deal's feasibility and potential risks. Despite the boards of both banking companies planning to meet tomorrow to approve a final agreement, the market's negative reaction to the deal has raised doubts about its success. Bank of Boston's shares fell $1.75 yesterday, to $40.125, on volume of 5.8 million shares, eight times its normal trading, while Corestates' stock dropped $1.125, to $33.875.

Key Takeaways:

  • The merger between Corestates Financial Corporation and the Bank of Boston Corporation faces significant opposition from investors and analysts.
  • The deal's attractiveness has been diminished due to the drop in Corestates stock, making the offer less attractive to Bank of Boston shareholders.
  • Large investors are considering whether they can put pressure on Bank of Boston to seek a higher bid, citing a Massachusetts law that requires approval from two-thirds of shareholders.
  • Mellon Bank Corporation is still eager to complete the deal and is considering whether to make a renewed offer to the Bank of Boston board.
  • Wall Street analysts have criticized the deal, noting its potential revenue losses, disruption to Corestates' cost-cutting program, and the dilution of profitability for Corestates shareholders.
  • Analysts have also questioned the motivations behind the deal, suggesting that executives want to preserve their control rather than prioritize profitability.

Statistics:

  • Bank of Boston's shares fell $1.75 to $40.125 on volume of 5.8 million shares, eight times its normal trading.
  • Corestates' stock dropped $1.125 to $33.875.
  • The proposed merger offer is worth about $38 per share based on Corestates' stock prices before word of the deal leaked.
  • Mellon had been prepared to offer slightly more than Corestates.
  • Bank of Boston would need approval from two-thirds of its shareholders to proceed with the deal.
  • The deal has sparked takeover rumors, with some speculating a potential bid of $45 to $48 per share for Bank of Boston.

Sources:

  • "Companies Agree to Merge" by an unnamed source, reported by an investment banker specializing in banks
  • "Investors Weigh Options" by an unnamed investment fund manager
  • "Mellon Taps the Brakes" by an unnamed spokesman for Mellon Bank
  • "Cost of Deals" by Sandra J. Flannigan, analyst with Merrill Lynch
  • "Managing Bank Mergers" by Thomas Brown, analyst with Donaldson, Lufkin & Jenrette