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First Union To Buy CoreStates Financial in the Largest Banking Merger in U

November 20, 1997 GMT

First Union To Buy CoreStates Financial in the Largest Banking Merger in U.S. History; Combined Bank Will Have 2,600 Branches Serving 16 Million CustomersBy MEKI COX

PHILADELPHIA (AP) _ Money is always high on a banker’s priority list, but it seems to have been secondary to Terrence Larsen’s desire to do some good for Philadelphia when he agreed to sell his bank, CoreStates Financial Corp., to First Union Corp. for $16.6 billion.

CoreStates, based in Philadelphia had only last month rejected a pricier $18 billion offer from Pittsburgh-based Mellon Bank Corp.


Larsen agreed Tuesday to the First Union merger, the largest in U.S. banking history, after the Charlotte, N.C. banking giant promised to fund a $100 million charity foundation in Philadelphia and spend another $16 million on job training for displaced CoreStates employees.

``In mergers like this, some companies give lip service ... for things like community commitments. I have to say I’ve admired how First Union put its money where its mouth is,″ Larsen, who is chairman and chief executive officer, said at a press conference.

First Union agreed to exchange 1.62 shares of its common stock for each share of CoreStates common stock, which works out to about $85 per share. That compares with $88 per share for the Mellon offer at the time it was made.

Mellon is not expected to make a counter offer for CoreStates.

``We’re disappointed our offer didn’t go through, but we had structured a proposal that was very beneficial for the state of Pennsylvania and Philadelphia, as well as for the shareholders, customers and employees of both organizations,″ said Steve Dishart, director of corporate communications for Mellon.

If the merger with First Union is approved by shareholders and regulators, the combined corporation would be the nation’s sixth largest banking company with $204 billion in assets.

It would establish First Union as the biggest banking presence on the East Coast, with 2,600 branches in 12 states, would bring First Union’s corporate banking center to Philadelphia along with a regional center for customer service.

Larsen said he thought the CoreStates merger, although slightly cheaper on a per-share basis than the Mellon proposal, would work out better for CoreStates shareholders in the longer term.

In addition, CoreStates’ pivotal position in the Philadelphia economy played an important part in the negotiations. CoreStates is the largest for-profit employer in the Philadelphia area, with 20,000 workers. Larsen said there will be some jobs lost to the merger, but fewer than the 3,000 jobs First Union expects to bring into Philadelphia.

Larsen would become vice chairman of the merged company, overseeing the regional operations covering Connecticut, New York, Delaware, New Jersey and Pennsylvania, and run the nonprofit foundation.

Larsen said his role in the new comany played no part in the negotiations, a position seconded by Edward E. Crutchfield, chairman and chief executive officer of First Union.

Some analysts said CoreStates shareholders should be delighted with the merger, even though they’ll make a little less per share. ``There can’t be any disgruntled shareholders because they made a ton of money,″ said Nick Forest, chairman of Lincoln Investment Planning Inc.

Frank Barkocy, a bank analyst at Josephthal, Lyon & Ross, Inc., noted that Mellon stock fell after its merger announcement because the Pittsburgh company was no longer viewed as a takeover prospect itself. But First Union’s stock rose on Tuesday, after its deal became public.

``If you look at the relative values of both sets of shares, I think... the First Union offer was worth at least as much if not more than the Mellon offer.″

The stocks of both companies fell Wednesday on the New York Stock Exchange. First Union fell 75 cents to $49.50 per share, while CoreStates dropped 94 cents to $78.06.

Barkocy said the charitable contributions could also help pave the way for approval of the merger under Community Reinvestment Act guidelines, which require banks to invest money in the neighborhoods _ including low-income areas _ from which they take deposits.

Community organizations often challenge such mergers by invoking CRA regulations.