The Dutch-owned LaSalle National Bank of Chicago will double its size by purchasing Exchange National Bank, its rival on the other side of LaSalle Street, for $420 million in cash.
The surprise merger, announced Wednesday, will create an institution with assets of more than $6 billion, making it the fifth-largest bank based in Illinois.
Bankers said the $24-a-share deal will bring more competition among banks serving medium-size companies.
”Here we see-and I welcome it-a huge Dutch bank doubling its size in Chicago,” said Thomas Theobald, chairman of Continental Bank Corp. ”Whether you like the internationalization of the market or not, it`s going to happen, so it`s better to see the employment and activity in Chicago rather than somewhere else.”
”This proves how important we felt when we decided to establish our U.S. headquarters in Chicago,” said Aldert Blank, vice chairman of ABN/LaSalle North America Inc., which oversees the Dutch bank`s offices in the U.S. and Canada.
Harrison F. Tempest, president of LaSalle, said he expects the combination to become effective in January. The merged bank will operate under the LaSalle name, he said.
Officials of their parent holding companies, LaSalle National Corp. and Exchange Bancorp Inc., kept the negotiations a secret before announcing the agreement.
LaSalle`s holding company, which was bought by Algemene Bank Nederland N.V. in 1979, has been expanding its presence rapidly in the Chicago area since Tempest joined the organization in late 1987. It bought the four-bank Lane Group in June, 1988, adding about $1.6 billion in assets.
The acquisition of Exchange ”really consolidates our position in Chicago” and will give LaSalle ”a much stronger growth potential” in pursuing business from middle-size companies, Tempest said. Each of the banks now claims to have a 6 percent share of that market.
”It`s going to mean more competition,” said Michael E. Tobin, chairman of American National Bank and Trust Co., which leads with a 23 percent share of the middle market. Tobin defines that group as firms with sales of $5 million to $150 million a year.
The merger will enable LaSalle to jump ahead of American National, which now holds the fifth spot in assets, with slightly more than $5 billion.
”Competition for the middle market is going to be tougher,” agreed Philip A. Delaney, president of third-ranked Harris Trust and Savings Bank, which is owned by Canada`s Bank of Montreal and is another big middle-market player. ”It`s a very interesting acquisition.”
The merger is subject to signing of a definitive agreement and to approval by shareholders and federal regulatory agencies. Shareholder approval isn`t likely to be a problem, since ABN owns all the stock of LaSalle`s parent company, and officers and directors of Exchange Bancorp own 45 percent of its stock.
John Rau, president of Exchange, will become president and chief executive officer of the merged bank, while Norman Bobins will be vice chairman and chief lending officer, the same posts he holds at Exchange. Robert Wilmouth will remain chairman of LaSalle. Tempest will be president of the holding company and ABN LaSalle Inc., the nationwide U.S. subsidiary of the Dutch bank.
Ira Kaufman, who led an investor group that bought control of Exchange in July, 1979, after three years of legal battles, will step down as its chairman when the merger takes effect.
Kaufman will continue to head Rodman & Renshaw Capital Group Inc., a LaSalle Street securities firm.
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The Kaufman investor group will realize a substantial profit from its 10- year investment. Based on LaSalle`s agreement to pay $24 for each Exchange share, the market value of the Exchange stock will have soared from $4 a share in 1979 to $100, before adjustment for stock splits, or an increase of more than 2,300 percent in shareholder value. Because of the splits, one share in 1979 has become 4.125 shares.
At the end of 1988, stockholder equity was $142 million, up from $28.9 million a decade earlier.
Exchange`s stock rose $4.12 a share Wednesday to $21.87 on the Nasdaq over-the-counter market. The stock of Rodman & Renshaw rose 50 cents a share to $6 on the NYSE.
The $420 million sale price includes about $8 million for unexercised stock options held by officers of the company.
”We have a lot of Exchange shareholders with enormous positions who are extremely happy and very surprised,” said Joseph Stieven, a banking analyst at Stifel Nicolaus & Co. in St. Louis.
”The deal is for 2.7 times book value. This is one of the highest cash transactions I`ve ever seen in a bank. A lot of people are walking away happy.”
The transaction actually will be second to Bank of Montreal`s purchase of Harris Bank for $546 million in 1984. First Chicago Corp. bought American National the same year for $267 million.
Tempest said the merged LaSalle bank will combine its commercial and retail banking operations in the building at 120 S. LaSalle St., where Exchange is located.
LaSalle`s parent company will remain at 135 S. LaSalle St.
”We will have both sides of LaSalle Street covered completely,” Kaufman said.
The two banks have a combined total of 2,800 employees, but Tempest said that number will be reduced somewhat through attrition after the merger.
The banks have a total of 18 banking offices in the Chicago area and about $4 billion in outstanding loans.
Tempest said that just six weeks after he joined LaSalle, he approached Rau about a possible combination of the banks because he felt ”they would be a perfect fit.”
In fact, according to Kaufman, previous LaSalle executives first raised the subject three years ago, ”but we didn`t feel the timing was right.”
Serious talks started about ”three or four months ago,” Tempest said.
LaSalle probably won`t seek to buy more banks in the near future, Tempest said. ”We`re satisfied,” he added. ”Now we are going to grow internally.” Creating a larger bank was just one motive in pursuing Exchange, Tempest said. ”We also had to protect ourselves against the time when Illinois will become open to interstate banking. We have preempted the possibility of an out-of-state bank buying one of our major banks.
”I think December, 1990, will now be a nonevent,” he added, referring to the date when Illinois will open its doors to full interstate banking.
Stieven, of Stifel Nicolaus, said the Dutch bank ”is really trying to set up a strong presence in Chicago, and this gives them a very good operation.”
It was also ”smart to do it before the (interstate banking) trigger happens,” he said. ”There will be fewer and fewer banks left as we get closer. They clearly wanted to buy a bank before everybody else is allowed to.”