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National City to buy Provident Financial

National City Corp., the No. 10 U.S. bank, on Tuesday said it will buy Provident Financial Group Inc. for about $2.1 billion in stock, combining two of Ohio’s largest banks.
/ Source: Reuters

National City Corp., the No. 10 U.S. bank, on Tuesday said it will buy Provident Financial Group Inc. for about $2.1 billion in stock, combining two of Ohio’s largest banks.

The purchase is National City’s second of a Midwest bank in three months and broadens its presence into one of the Midwest’s key hubs — Cincinnati.

It is the latest of several combinations involving regional banks that are courting retail customers. New York regional bank North Fork Bancorp. is buying cross-town rival GreenPoint Financial Corp., and Regions Financial Corp. and Union Planters Corp. are merging to create one of the biggest banks in the U.S. Southeast.

Provident shareholders are to receive 1.135 National City shares for each Provident share. The terms value Provident at $40.17 per share, a 15.3 percent premium over its Friday closing stock price.

“We have built a really strong distribution system across the Midwest,” National City Chief Executive David Daberko said in an interview. “The one major metropolitan area where we had no branch presence at all was Cincinnati, which is virtually at the center of our geographic franchise.”

In November National City, based in Cleveland, agreed to buy Allegiant Bancorp Inc. for about $475 million to expand into St. Louis. It also plans to expand in the Chicago area.

National City had $114 billion of assets and $64 billion of deposits as of Dec. 31. It operates more than 1,100 banking offices, with branches in Ohio, Illinois, Indiana, Kentucky, Michigan and Pennsylvania. It employs about 33,300 people.

Provident had $17 billion of assets and $10.3 billion of deposits as of Dec. 31. It operates 65 banking offices in southwest Ohio and northern Kentucky, and employs about 3,200 people.

The company, whose roots date to 1900, said it opened its first Provident Bank office in Cincinnati on May 29, 1902.

In Tuesday morning trading, Provident shares rose $3.91 to $38.74, while National City shares fell 76 cents to $34.63.

Mergers
National City expects the merger to boost per-share profit by about 2 percent in 2005 and sees a $200 million after-tax merger-related charge. It sees merger-related cost savings of about 25 percent over two years, and Daberko said it is “pretty logical” there will be job cuts.

He said National City may eventually add as many as 12 branches in the Cincinnati area.
Cincinnati’s Lindner family owns more than one-third of Provident and is its largest shareholder.

Provident leases its main offices from the Lindners’ American Financial Group Inc., a property and casualty insurer. Patriarch Carl Lindner said he plans to vote his Provident shares in favor of the merger.

National City has been the subject of market talk that it might itself be a merger target. Last month J.P. Morgan Chase & Co. agreed to pay $58 billion for Bank One Corp., while in October Bank of America Corp. agreed to pay $47 billion for FleetBoston Financial Corp.

“I often say if you look at the 20 largest banks in the country at the start of the decade, there will be 10 left at the end of the decade, and I suspect that will be true this decade,” said Daberko. “We’re a public company, we have to do the best with what we’ve got, and if a serious offer came along we would have to entertain it.”
National City said it expects the acquisition to close in the second quarter, subject to regulatory and shareholder approval.
Daberko said Merrill Lynch & Co. and the law firm Jones Day advised National City on the transaction, while UBS and the law firm Arnold & Porter LLP advised Provident.
Separately, National City’s board of directors authorized the repurchase of up to 50 million of its 606 million common shares, with a maximum expenditure of $2 billion.