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FleetBoston buys Summit
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October 2, 2000: 5:22 p.m. ET
Acquisition of Princeton, N.J., bank firms up Fleet's Northeast expansion
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NEW YORK (CNNfn) - Eyeing a new platform to distribute its numerous financial products, FleetBoston Financial Corp. sealed a much-rumored agreement to purchase Summit Bancorp for $7 billion in stock, bolstering its ongoing Northeast expansion plans.
The merger, finalized late Sunday, will create the No. 1 commercial bank in New Jersey, giving FleetBoston (FBF: Research, Estimates), currently ranked the No. 7 U.S. bank by assets, access to more than 1.2 million new retail customers, 500 branches and $39 billion in new assets.
The company also anticipates the union will increase its earnings by 1 cent in 2001 and by 11 cents in 2002 without including any of the revenue enhancements FleetBoston executives believe they can derive from leveraging the bank's products across the Summit (SUB: Research, Estimates) franchise.
"This transaction in no way means a shift in our overall strategy," said Terrence Murray, FleetBoston's chairman and chief executive officer. "We are continuing to build a diversified financial services company. It is an economically compelling move to bring us the same capacity in New Jersey that we have in New York, Connecticut and New England."
Murray told CNNfn the acquisition fits with its strategy for both its consumer franchise and the wealth side of private banking. (508K WAV or 508K AIFF)
"I think that the cost savings available in the deal are very real, and the deal should be accretive to Fleet's earnings, which is good thing financially, but what the banking industry in general has to prove to the investment world is that they can cross-sell additional products to all of those retail and small business and commercial banking customers," said Michael Ancell, banking analyst with Banc of America Capital Management. "If they show real revenue growth doing these types of cross-selling activities, then a deal like this really might be something to get excited about."
The agreement, expected to close during the first or second quarter next year, calls for Boston-based Fleet to exchange 1.02 of its own shares for every share of Summit, an arrangement that values the Princeton, N.J.-based bank at $39.78 per share.
 That price reflects a 15.7 percent premium over Summit's closing price of $34.38 Friday, but is a more-than-40 percent increase above the company's trading price last week before news of a possible merger first emerged.
The agreement also represents the first significant U.S. bank merger since Wells Fargo's (WFC: Research, Estimates) $3.2 billion purchase of First Security last April, although the financial services sector has been ripe with deals recently as providers race to build diversified global franchises.
Murray insisted Fleet too remains focused primarily on leveraging its financial services products, which range from mutual funds to insurance, and not building out its retail branch system. He noted the enormous growth potential within Summit's current customer base in fee income-generating areas such as online banking, which only 3 percent of Summit customers use, compared with 26 percent of Fleet's customers.
"The transaction ... presents a significant opportunity to sell many of our products and services to a substantial new customer base," he said.
FleetBoston, created by last year's merger of Fleet Financial and BankBoston Corp., has 1,250 branches in the Northeast, mostly in the New England states, and boasts roughly $181 billion in assets.
The bank expects to divest approximately $250 million in deposits related to the acquisition, primarily in southern New Jersey, to ease antitrust concerns. Company officials said there would be some employee losses, primarily in overlapping regions, but declined to say how many job cuts.
FleetBoston expects the merger to generate $275 million in cost savings, including $150 million in personnel costs, although the company does expect to take a $250 million charge related to the deal when it closes and $60 million in subsequent quarters.
Fleet shares shed 50 cents to $38.50 Monday while Summit shares gained $3.75 to $38.13. 
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