Riggs National Corp., its reputation battered in a money-laundering probe, on Thursday agreed to a reduced $652 million takeover offer from PNC Financial Services Group Inc., salvaging a merger that appeared dead just three days ago.
PNC agreed to pay $20 per share in cash and stock for Riggs, far below the $24.25 it offered last July. The new terms value Riggs at 16 percent below the original $779 million.
The revised terms follow last month’s guilty plea by Riggs’ banking unit to violating the Bank Secrecy Act in connection with accounts of former Chilean dictator Augusto Pinochet and officials of tiny, oil-rich Equatorial Guinea.
Analysts said Washington, D.C.-based Riggs, once the dominant U.S. banker for the diplomatic community, did well to save the merger even at the reduced price, given its shrinking deposit base and tarnished reputation.
“Riggs knew it couldn’t remain independent,” said Gary Townsend, a bank analyst at Friedman Billings Ramsey & Co. “PNC’s desire for Riggs was to get instant entrance into Washington in a sizable way. But I think it overplayed its hand, and Riggs called its bluff.”
Riggs will withdraw a lawsuit it filed on Monday accusing Pittsburgh-based PNC, Pennsylvania’s largest bank, of improperly trying to slash the purchase price.
“We have assessed the remaining risks to Riggs, and we believe we have reached a revised agreement that is fair to all parties, said PNC Chief Executive James Rohr in a statement. He called the fast-growing Washington marketplace “extremely appealing.”
Joe Allbritton, whose family controls Riggs, will vote his 25 percent Riggs stake for the merger, they said.
The transaction is expected to close soon, but either bank may pull out if it hasn’t closed by May 31.
Guilty plea
A Washington institution since the 1830s, Riggs has funded such things as the purchase of Alaska from Russia, and the Spanish-American War.
But Riggs Bank on Jan. 27 pleaded guilty and agreed to a $16 million criminal fine for not reporting suspicious transactions under the Bank Secrecy Act.
The 1970 law gained prominence amid worries about potential financing of terrorists after the Sept. 11, 2001 attacks.
Riggs agreed last May to pay a record $25 million civil fine, and is shutting its international operations. It has about $6 billion of assets and 50 branches.
“Even at $20 a share, PNC is not getting a bargain,” said Bert Ely, an independent banking consultant at Ely & Co. in Alexandria, Virginia. “Riggs’ deposit franchise is not as strong as it was. There has been a lot of damage to its franchise, and PNC has to rebuild it.”
Riggs on Monday said it expects a $60 million fourth-quarter net loss, or about $1.90 per share.
PNC will pay 6.4 million of its shares and $286 million in cash for Riggs under the new merger agreement, which the banks said is otherwise “substantially similar” to the old one. A copy of the revised agreement was not immediately available.
Sandler O’Neill & Partners LP and the law firm Wachtel, Lipton, Rosen & Katz advised PNC on the transaction. Lehman Brothers Inc. and the law firm Sullivan & Cromwell LLP advised Riggs.