Capital One to buy regional bank for $5.3 billion

/ Source: The Associated Press

Credit card issuer Capital One Financial Corp. has agreed to pay about $5.35 billion in cash and stock for the Louisiana regional bank Hibernia Corp. in an effort to expand from direct mail marketing to branch banking outlets.

The deal announced Sunday will make the company the nation’s ninth largest consumer lender and will put it in the top 20 in terms of deposits, Richard A. Fairbank, Capital One chairman and chief executive officer, told analysts in a conference call Monday.

McLean, Va.-based Capital One has been eager to buy a commercial bank for some time to bolster its credit card distribution — almost entirely through direct mail — to compete with large institutions such as Bank of America Corp., which can sell cards through its 6,000 branches.

The boards of directors of Capital One and New Orleans-based Hibernia approved the deal Sunday, said Richard Woods, a Capital One spokesman.

Under terms of the deal, Hibernia shareholders will receive $33 for each share, split into 45 percent cash and 55 percent stock. That equals $15.35 in cash, and an exchange of shares worth .2261 of each Capital One share.

The deal values Hibernia shares at a 24 percent premium based on the stock’s closing price Friday of $26.57 per share.

Hibernia has more than $22 billion in assets, 293 branches and operations in Louisiana, Texas and Mississippi. It is the 36th largest U.S. bank by market capitalization, according to data provider SNL Financial.

Hibernia Chairman E.R. Campbell will join the board of directors, and J. Herbert Boydstun has a three-year contract to remain as president of Hibernia, which will be renamed at a later date, Woods said. Boydstun said Monday he intends to keep Hibernia’s senior management team together.

Pending regulatory and shareholder approval, the merger could be completed in the third quarter, Woods said.

Hibernia’s foundation in Louisiana and recent expansion into the Dallas and Houston areas with “upper end, very impressive retail-focused branches” was an appealing mix, Fairbank told the analysts.

“This model appears to be just the type of thing we were looking for,” he said.

In addition to the potential for additional branches in Texas, Capital One plans a develop a debit card business and home equity credit lines, Fairbank said.

The combination of Capital One’s information-gathering tools and brand name will improve Hibernia’s services, Boydstun said.

“This is a great old company that we love, and I know what it means to Louisiana, but companies like people have natural life cycles,” Boydstun said. He added Hibernia had long been considered ripe for the taking by a major corporation. The company’s stock has risen more than 12 percent in the last 12 months.

Boydstun said Sunday that Hibernia customers should see few changes. “I think that if anything the service should be expanded,” he said.

Last summer, Capital One announced plans to cut more than 1,600 jobs, mainly as it closed call centers and outsourced that work.