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Merger of Union Planters Corporation and Regions Financial Corporation

On Friday, January 23, 2004 Union Planters Corporation and Regions Financial Corporation announced they would merge. This will create the twelfth largest holding company in the United States. This merger was deemed the merger of equals (Hillard, 1/26/2004, para. 2). The stockholders of both companies overwhelming voted for the merger on June 8, 2004 (Morgan, 6/17/2004, para. 2). On June 17, 2004 the merger received approval from the Federal Reserve, the last of the governmental approvals needed (Morgan, 6/17/2004, para. 1).

The merger effective date was July 1, 2004, when the Union Planters stock symbol ceased to exist (Morgan, 6/17/2004, para. 5). Union Planters Corporation was a 31. 5 billion dollar holding company. They were the largest holding company headquartered in Tennessee and one of the largest thirty in the United States (Morgan, 6/17/2005, para. 10). Union Planters has 925 Automatic Teller Machines and 717 banking office. These banking offices are located in Alabama, Arkansas, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Missouri, Tennessee, and Texas (Morgan, 1/23/2004, para. ).

Before the merger, Union Planters revenues had decreased 11. 86% from 2002 to 2003. Their net income also decreased by 2. 3%. Union Planters’ compounded annual growth in the net income category was only . 04% for both three and five years respectively (Thompson, 12/2003-5/2004). Union Planters has struggled the last few years due to their mortgage operations. If the merger had not taken place it would have struggled to reach the EPS guidance they gave a week before the merger announcement (Goldberg, Jason, 1/26/2004, para. 19).

Union Planters does not have a good track record for integrating bank mergers, especially one of this size (Goldberg, Jason, 1/26/2004, para. 20). This might have been one reason why they fell into the arm of Regions. Union Planters has improved their balance sheet somewhat, but their non-performing assets to assets ratio is still high compared to their peers. Their net charge offs for the average loans in 2003 was . 89% (2004, para. 5). Regions Financial Corporation before the merger was a 48. 6 billion dollar holding company. Regions Financial operates 680 offices across the south.

They also own Morgan Keegan, a brokerage subsidiary, which has 140 offices. Morgan Keegan is headquartered in Memphis, Tennessee and will remain in Memphis. Regions’ is a member of Forbes and Fortune 500 (Morgan, 1/23/04, para. 17). Regions revenues also declined 8. 44% from 2002 to 2003. Their net income increase 5. 15% between 2003 and 2004. Regions three year compounded annual growth for net income was . 09% and . 04% for five years (Thompson, 12/2003-5/2004). Regions also does not have a good track record of integrating their mergers (Goldberg, Jason, 1/26/2004, para. 20).

Profit growth for Regions lagged behind the industry average in 2003 (1/24/2004, para. 1). Both banks are similar in size, corporate culture, and operations. There is very little overlap of their branches. Regions and Union Planters have a total of 1,383 branches in fourteen states. As you can see from the table below, Regions and Union Planters only have overlapping branches in six states. Tennessee creates the biggest challenge for consolidation with seventy-two branches in twelve cities. However, consolidation of branches in large cities such as Memphis, Tennessee may not be a problem.

Depending on where each branch is located, the closing of branches may be minimal. This is a very important factor when companies merge due to job loss and moral. Hopefully most of the jobs losses will be through attrition and if jobs must be eliminated then it should be minimal. The new Regional Financial Corporation has combined two very equal corporations. In the banking world, bigger is usually better and provides economy of scale. The integration of both companies into one is expected to take three years.

The savings obtained from the combined operations has been estimated as 15% in 2004, 60% in 2005, 85% in 2006, and 100% afterwards. (Hilliard, 1/26/2004, para. 3). However, a merger of two equals usually has disappointed their shareholders. Sometimes this is a lack of clear leadership. This is not the case in this merger because Union Planters CEO, Jack Moore will become the CEO of Regions after Regions’ CEO Carl Jones retires this year. Another reason for disappointing the shareholders is the corporate culture, but these banks are very similar in that respect also.

There were no premiums paid to Union Planters because the stockholders received one share of Regions’ stock for one share of Union Planters stock. However, Regions’ stockholders did receive about a 2. 6% premium for their shares (Goldberg, 1/26/2004, para. 10). From an outside view this looks like the perfect merger, but that may not be the case. In conclusion, this merger may not be a winner for the stockholders. Neither corporation has produced the growth seen by other banks. So the question still remains on how Regions will grow their corporation.

It appears that most of the growth will come from cost savings from the combined operations. This short lived growth does nothing to help long term growth that will be needed to keep pace with the other banks in the country. Even though there is very little over lapping of the bank branches, the merger still does not produce a viable footprint. Too much of their growth depends on their mortgage banking. Morgan Keegan’s helping hand has also declined (Horowitz, 1/25/2004, para. 10). The new Regions’ stock is below their 50 and 200 day moving average (Yahoo, 01/25/2005, chart).

Their fourth quarter EPS was $0. 56, which was below the consensus of $0. 59. Minimal fee income along with higher expenses and de-leveraging of the balance sheet helped to decrease the fourth quarter results. A good point to mention is that the non-performing assets have declined 2% and net charge-offs were just . 33% of the average loan. (Credit, 1/18/2005, para. 5). This past quarter Morgan Keegan did help offset the declining fee income and especially the lower performing mortgage operations.

The mortgage conforming business fell to $0. 85 million from $4. illion posted in the third quarter. This trend is expected to continue through 2005 (CitiGroup, 1/18/2005, para. 16). The fourth quarter also saw a marine manufacturing credit declare bankruptcy. This indebtedness for the marine company is sixty million.

However, Regions feels the debt is well secure and doesn’t expect a write off. (Credit, 1/18/2005, para. 11). This merger has kept other banks from buying them for the present time. Based on both companies flat performance for the past several years, it could be just a matter of time before Regions is taken over by a larger bank.

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