PNC and National City Banks Merge Despite Armageddon (PNC, NCC)

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Today is one ugly day for financial stocks, and probably one of the crummiest days so far that you could pick to announce a merger.  Yet hold on to your seats.  PNC Financial Services Group, Inc. (NYSE: PNC) has signed a definitive agreement to acquire National City Corporation (NYSE: NCC).  The deal has been approved by the boards of directors of both companies.

This merger comes with interesting terms.  National City shareholders are entitled to 0.0392 share of PNC common stock foreach share of National City.  The PNC offer to acquire National City isfor $2.23 per share, or an aggregate fixed amount of approximately $5.2billion in PNC stock. Additionally $384 million of cash is payable tocertain warrant holders.  National City has issued to PNC an option toacquire 19.9 percent of National City’s common stock that becomesexercisable under certain specified circumstances.

PNC plans to issue to the U.S. Treasury $7.7 billion of preferred stockand related warrants under the TARP Capital Purchase Program subject tostandard closing requirements.

The combined entity will all of a sudden be the fifth largest bank asfar as deposits are concerned, and apparently it will be fourth in thenumber of branches nationally.

The dollar terms announced would have been $2.33 based upon a PNC closeof $56.88.  Unfortunately, its shares are lower along with the rest ofthe other financial stocks and it appears down 4.6% at $54.32 if thoseare accurate prints on a day where stocks are not opening normally andare certainly not opening higher.

Jon C. Ogg
October 24, 2008