Bank of America to buy FleetBoston

BANK OF AMERICA has agreed to buy FleetBoston Financial Corp for $47 billion in stock, creating the second-biggest US bank and signalling a revival in corporate acquisitions.

Bank of America, based in Charlotte, North Carolina, will pay $45 a share for FleetBoston, 42% more than the Boston-based bank’s Friday closing price,

according to a joint statement. Shares of Bank of America dropped 10.2% yesterday. FleetBoston jumped as much as 26%.

The purchase of the seventh-biggest US bank by Bank of America’s chief executive officer Kenneth Lewis, 56, will vault his company ahead of JP Morgan Chase & Co as the No 2 US bank by assets. This month was the busiest for global mergers since July 2001, data compiled by Bloomberg show.

The transaction “shows mergers and acquisitions are back on the agenda,” said Thomas Meier, who helps manage about $40 billion at Union Investment GmbH in Frankfurt, including Bank of America shares.

In two other multi-billion takeovers yesterday, Anthem Inc agreed to buy WellPoint Health Networks Inc for $16.4 billion to form the largest US health insurer. UnitedHealth Group, Inc, the current leader, announced plans to buy Mid Atlantic Medical Services for $2.95 billion.

Lewis will be CEO of the combined bank, and FleetBoston’s CEO, Chad Gifford, 60, will be chairman. Bank of America, which has 4,200 branches across the US, has none in the six-state New England region of Connecticut, Massachusetts, Maine, New Hampshire, Vermont and Rhode Island, according to its website.

“The geographic fit couldn’t be better,” Lewis said on a conference call with investors and analysts. “We are creating a fortress franchise that cannot be duplicated.”

FleetBoston has about one-fifth of bank deposits in New England. Gifford said FleetBoston wasn’t big enough to compete outside its home market with larger rivals.

“Emotionally, who wants to be the guy that sold THE bank in the Northeast, but my job as chief executive was to step back and try to decide what was best for our shareholders and our constituents,” said Gifford in the conference call.

“And in entered Ken Lewis.” In the acquisition, Bank of America is paying 2.78 times Fleet’s book value, compared with an average of 3.12 for the top 10 bank mergers since 1998, according to Bloomberg data.

The 42% premium Bank of America is paying above Fleet’s average stock price the past 20 days compared with the average of 16% for those deals, according to Bloomberg data.

“There’s a scarcity value,” said Waybe Bopp, who helps manage $31 billion at Fifth Third Bancorp in Cincinnati, including Bank of America shares.

“You probably have disappointed suitors who didn’t want to pay this big a price.” Bank of America shares slid $8.08, or 10%, to $73.78 at 10:33am in composite trading on the New York Stock Exchange. The shares have advanced 6% this year.

Fleet shares climbed $7.60, or 24%, to $39.40. They have gained 65% this year. FleetBoston was advised on the transaction by Morgan Stanley, while Goldman Sachs Group Inc. worked with Bank of America. The Boston Globe earlier reported the transaction.

Profit of the combined bank is expected to be $7.10 a share in 2004, lower than the $7.27 average estimate of analysts surveyed by Thomson Financial, Bank of America chief financial officer James Hance told investors.

The transaction is expected to boost earnings in 2005 to $7.97, compared to the average analysts’ estimate of $7.92.