BB&T Acquisition Spree Has Some Worried About Fast Pace

A blistering acquisition pace has helped BB&T (BBT) to a 35% gain over a year. But a particularly pricey deal Wednesday has sparked questions about whether the bank has too many deals on its plate.

Winston, N.C.-based BB&T Wednesday agreed to acquire F&M National (FMN) for $1.17 billion in stock and Virginia Capital Bancshares (VCAP) for $180.5 million in shares. BB&T said the deals would boost its assets to more than $11 billion and bump it to about fourth place in Virginia, from sixth. With $4 billion in assets, F&M owns 12 community bank subsidiaries in Virginia, West Virginia and Maryland.

Two Views

Jason Goldberg, banks analyst at Lehman Brothers, points out that the price on the F&M National deal represents a hefty 3 times book value, against an average 2 times to 2.2 times for similar transactions. And typically for a serial acquirer, BB&T's stock isn't cheap. It trades at 14.8 times 2001 earnings, while other regional bank stocks trade around 10 or 11 times 2001 earnings estimates, based on the Philadelphia Stock Exchange/KBW Banks Index.

Goldberg also points out that BB&T's latest deals mark its 13th and 14th announced acquisitions in a space of two years, a head-turning rate by any standard. Of those, eight deals are pending, raising worries about how well the company can handle the merger integration, Goldberg says.

Though Goldberg still rates BB&T a buy with a $40 price target, "We are ... growing increasingly concerned with the company's acquisition strategy," the analyst said in a research note Thursday. Goldberg says he remains slightly cautious following the F&M deal, which he expects to be modestly dilutive to cash earnings per share at first, then modestly accretive in 2002. (Lehman hasn't done any underwriting for the bank.)

Scarcity

But David Stumpf, banks analyst at A.G. Edwards in St. Louis, sees the lofty price as a necessary evil. "There are just not that many franchises left in Virginia," says Stumpf. "It's difficult to pass on a company like F&M, so the scarcity probably affected the premium." (He rates BB&T accumulate, and his firm has no underwriting relationship with the bank.)

Stumpf also contends that "the premium is more than justified given BB&T's consistent record of superior results." Sandler O'Neill analyst Mark Fitzgibbon, meanwhile, thinks the shares are "undervalued as a consequence of investor concerns" about its acquisition strategy. (He rates the stock buy.)

For his part, Goldberg concedes that companies like Wells Fargo (WFC) have demonstrated that numerous acquisitions can be smoothly and successfully integrated. "You tend to hear about the banks that have had problems with this strategy, but other banks have done it successfully," he says. Though he is somewhat skeptical, he says with BB&T, "there's no evidence yet that it shouldn't work."

BB&T edged up 25 cents to $36.25 Thursday.

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