updated 9/7/2005 3:57:52 PM ET 2005-09-07T19:57:52

Capital One Financial Corp. has renegotiated its acquisition of Louisiana's largest bank to account for the impact of Hurricane Katrina, reducing its offer for Hibernia Corp. by about 9 percent to $5 billion and delaying the closing of the deal by at least a month.

Capital One had been slated to close on its $5.35 billion acquisition of New Orleans-based Hibernia on Wednesday, but the companies said Wednesday morning that Capital One would now pay only $5 billion for the bank and that the transaction would not be completed until some time in the fourth quarter.

If approved by Hibernia shareholders, the deal will give Capital One its own bank, which it could use to bolster its credit card distribution, now done almost entirely through direct mail. And it will give the company access to cheaper funding because banks like Hibernia attract consumer and business deposits.

A number of other acquisitions have occurred in recent months to reduce the number of standalone card issuers, but in the opposite direction.

In early August, a unit of HSBC Holdings PLC snapped up credit-card issuer Metris Cos. Inc. for $1.59 billion cash, while Washington Mutual Inc. said it would pay $6.45 billion for card issuer Providian Financial Corp. And Bank of America Corp. said on June 30 it would acquire MBNA Corp. for $35 billion.

Wednesday marked the second time Capital One delayed closing on the acquisition, which was originally scheduled for Sept. 1.

Hibernia shareholders, who approved the initial deal with 94 percent support, must vote on the revised deal. The exact value of the cash-and-stock deal will depend on the value of Capital One Stock at the time the deal closes. Based on Capital One's closing price on Sept. 6 of $80.50, the deal would be $5 billion, or $30.49 for each Hibernia share.

Hibernia shares fell $1.41, or 4.5 percent, to $29.99 in midday trading on the New York Stock Exchange. Capital One shares dropped 32 cents, or 0.4 percent, to $80.26 on the NYSE.

The companies said in a press release that they negotiated the new price after studying the damage caused by Katrina on Hibernia's facilities and Hibernia's future business prospects, "including the significant federal and state aid and insurance proceeds expected to be received by victims of the hurricane in Louisiana."

Hibernia said 107 of its 321 branches were affected by Katrina. Of those 47, have since reopened. Of the 60 that have still not reopened, the company estimated that about 21 branches, accounting for 5 percent of Hibernia's deposits, were severely damaged.

Hibernia President and Chief Executive Herb Boydstun said in a statement that "Capital One has demonstrated consistent commitment and support to Hibernia's employees, customers, and communities, particularly in this most challenging time."

Adam Barkstrom, a banking analyst with Legg Mason, which owns more than 1 percent of Hibernia stock, said Hibernia probably had little choice but to renegotiate the deal. Capital One retained the legal right to walk away from the deal entirely following a "material adverse event."

"I think they were in a position where they had to renegotiate," Barkstrom said. "There are a lot of uncertainties out there."

At the same time, Capital One could run the risk of being perceived as heartless for reducing its offer in the wake of a tragedy.

"That's certainly an issue," Barkstrom said. "But if Capital One had stuck to the deal without making any changes, they open themselves up to their own shareholder lawsuits. ... My initial take is that Capital One did a pretty good job of finding that line" between protecting its own interests and showing compassion for a business partner in desperate straits.

Capital One President and Chief Executive Richard Fairbank said in a statement that he still believes acquiring Hibernia is a sound investment.

"While no one can predict the impact of Katrina with certainty, I remain convinced of the strategic value of this transaction and believe that Hibernia is well-positioned to grow and generate significant shareholder value over time," he said.

Hibernia is Louisiana's oldest bank, founded during Reconstruction in part to help New Orleans' economy recover from the devastation caused by the Civil War. About two -thirds of Hibernia's 321 branches are located in Louisiana, with the rest in Texas.

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