Monday April 23, 11:47 am ET
By Jonathan Stempel
The all-cash purchase would fill a hole in Bank of America's 5,737-branch network, the nation's largest, and make it Chicago's largest bank, passing JPMorgan Chase & Co. JPM.N>. It would also give Bank of America its first branches in Michigan, a state ravaged by contraction of a once-dominant auto industry.
Bank of America said the purchase would add 411 branches, 1,500 automated teller machines, 1.4 million retail customers, 17,000 commercial clients, and $113 billion of assets.
Bank of America said its net cost for LaSalle would be $16 billion, after a return of excess capital. It estimated the price at 21.3 times expected 2007 earnings, above a 16.3 multiple on comparable acquisitions, and 2.2 times book value.
"It's a full price," said Chris Hagedorn, who helps invest more than $20 billion at Fifth Third Asset Management in Cincinnati. "It's hard to say they really wanted to be in Michigan on their own. The key takeaway is the desire to be in Chicago in a bigger way."
Chief Executive Kenneth Lewis has long eyed expansion in Chicago. "The opportunity arose, and we have acted," Lewis said on a conference call. He said the bank plans no more acquisitions "of any size whatsoever through 2008."
LaSalle has 141 branches around Chicago, 264 in Michigan and six in Indiana. Bank of America has 56 branches in Chicago.
In morning trading, Bank of America shares fell 53 cents to $50.51 on the New York Stock Exchange.
Lewis said Chicago's "size of population, attractive demographics, projected growth and overall wealth concentration" was appealing.
He added that "the LaSalle retail franchise has materially underpenetrated Chicago, and to a lesser extent Detroit."
The bank will drop the 67-year-old LaSalle name. LaSalle's roots date to 1927.
As of June 30, 2006, JPMorgan had 15.3 percent of deposits in the Chicago area, LaSalle had 14.11 percent and Bank of America had 1.81 percent, according to Federal Deposit Insurance Corp. data.
Lewis said his Charlotte, North Carolina-based bank was confident it would not breach a federal regulatory cap that bars acquisitions giving a bank more than 10 percent of U.S. deposits. Bank of America recently controlled 9.1 percent.
Michigan, meanwhile, has suffered the loss of some 80,000 jobs in recent months at the Big Three U.S. automakers alone.
The purchase means Lewis will have spent well over $100 billion on acquisitions since he became chief executive in 2001, including more than $82 billion for FleetBoston Financial Corp. and credit card issuer MBNA Corp.
Lewis, who has been praised for integrating Fleet and MBNA and surpassing his cost-cutting goals, has a reputation for paying big prices for acquisitions.
Bank of America shares traded at 10.5 times expected 2007 earnings, the lowest multiple of any major U.S. bank, and 1.7 times book value. Analysts say Lewis' appetite for acquisitions is a reason for the low multiples.
Still, referring to LaSalle, Lewis said that "having a dominant position in some of the best markets in the best economy in the world is not a bad double-down."
Bank of America expects LaSalle to generate $800 million of savings by 2009, result in $800 million of restructuring costs, and add 2 percent to earnings per share in the first year. It expects a late 2007 or early 2008 closing.
ABN AMRO can accept a higher offer for LaSalle for two weeks. Bank of America can match a higher offer and would get $200 million if its agreement its terminated.