Tar Heel Tattler - January 2007

Urge to merge is no dirge for BB&T
By Irwin Speizer

There’s a reason many CEOs don’t like to talk about mergers until they’re done: Tongues wag, and people get nervous about what might happen. Take John Allison’s recent statement that Winston-Salem-based BB&T Corp. is interested in a merger of equals during the next five to 10 years. He has said it before, but repeating it started another round of speculation.

Part of the reason might be the phrase “merger of equals.” To many, it’s a euphemism that lets a company save face. “He’s talking about being willing to negotiate being acquired,” says Tony Plath, associate professor of finance at UNC Charlotte. After all, mergers of equals often end up with winners and losers. The last big Winston-Salem bank that took that route — Wachovia — was swallowed by Charlotte-based First Union, which also took its name.

To Plath, Allison’s comments suggest he’s willing to discuss just about any issue, including who will sit on the board of the surviving company, who will be the top managers and where they will be based. “What is the probability that they stay in Winston-Salem? 50-50.”

With $118.5 billion in assets, BB&T is the third-largest bank in North Carolina and the 14th-largest in the nation. Its footprint stretches from Maryland to Florida, yet it’s not in the same league with behemoths such as Charlotte-based Bank of America, the nation’s second-largest bank with $1.5 trillion in assets, or Wachovia, fourth with $559.9 billion in assets.

Allison had tried to hook up with Birmingham, Ala.-based Regions Financial — $87 billion in assets — but couldn’t agree on a price. Spokesman Bob Denham dismisses talk of BB&T being on the block. The reason for a merger would be to bulk it up, so it will be big enough to survive.

Some domestic banks — including Minneapolis-based U.S. Bancorp of Minneapolis, Cleveland-based National City or Cleveland-based KeyCorp — would add geographical diversity. If no banks want to deal with BB&T, Allison would consider a match with a securities or insurance company.

Renewed talk of a merger had little effect on BB&T stock. But it could scare away the bank’s rising talent, says Christopher Marinac, an analyst with FIG Partners in Atlanta. Smaller community banks hungry for seasoned banking executives probably are circling already, he says. “This sends a message that there is an air of uncertainty at that bank and a question about long-term job security.”