- The Washington Times - Monday, October 9, 2006

PITTSBURGH (AP) — PNC Financial Services Group Inc., one of the nation’s largest regional banks, said yesterday it would buy Baltimore’s Mercantile Bankshares Corp. for about $6 billion as part of an expansion plan targeting wealthy, fast-growing markets.

The Pittsburgh company said the cash-and-stock deal will further its growth along the affluent New Jersey-to-Washington corridor, adding hundreds of new branches in Maryland, the District, Virginia and Delaware.

“I think it’s fairly self-evident that the combination of Mercantile and PNC will be a Mid-Atlantic powerhouse,” said James E. Rohr, PNC’s chairman and chief executive officer.

The regional footprints of the two banks fit well together, he told analysts during a conference call. “With their 240 branches, PNC will have market coverage of the wealthy East Coast corridor from the Hudson River to the Potomac,” he said.

The transaction would make PNC the second-largest bank by deposit market share in Maryland and Delaware and is expected to accelerate growth in Washington and Delaware, according to Mr. Rohr.

Last year, PNC got a foothold in the attractive Washington market with its $643 million acquisition of Riggs Bank, which was headquartered in the nation’s capital.

Based on PNC’s closing stock price of $73.60 yesterday, the deal values shares of Mercantile at $47.24 apiece, a 28.4 percent premium over their closing price of $36.78 Friday.

Mercantile Bankshares shares rose $8.16, or 22.2 percent, to $44.94 in trading on Nasdaq yesterday. PNC shares fell $3.20, or 4.35 percent, to $70.40 in trading on the New York Stock Exchange.

Mercantile shareholders will receive a combination of 52.5 million shares of PNC stock and $2.13 billion in cash. Under the deal, each Mercantile share will be exchanged for 0.4184 shares of PNC stock and $16.45 in cash.

PNC expects the deal to close in the first quarter of 2007, pending shareholder and regulatory approvals.

Mercantile customers have a median income of more than $69,000 a year, 18 percent higher than PNC’s current customers, the bank said in a presentation to investors. Population is expected to surge 10 percent in the next five years in the counties where Mercantile does business, compared with 2.1 percent for PNC’s population base.

David A. George, an analyst at A.G. Edwards, said “obviously Mercantile is a very attractive franchise” that will improve the growth potential of PNC’s regional operation.

“However, it does come at a price,” he said. “PNC is paying a full price at 18 times the 2007 consensus earnings expectations for Mercantile.

“If they execute well over the next two to three years, it could prove to be an attractive investment,” Mr. George said. “But there’s execution risk.”

Two Mercantile directors will join the board of the combined company. Mercantile Chairman, President and Chief Executive Officer Edward J. Kelly III will be named a PNC vice chairman when the deal is completed.

PNC has $94.9 billion in assets and more than 2.5 million consumer and small-business customers in Pennsylvania, New Jersey, Maryland, Virginia, Delaware, Ohio, Kentucky, Indiana and the District.

Mercantile has $17 billion in assets and offers services through 240 offices in Maryland, Virginia, the District, Delaware and southeastern Pennsylvania.

PNC said the deal for Mercantile should make PNC a top-10 U.S. bank holding company by market capitalization and the 11th-largest bank by deposits.

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