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United Bankshares Acquiring Now, but Could be Takeover Target Later

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Blip, blip, blip.

That's the sound of

United Bankshares

(UBSI) - Get United Bankshares, Inc. Report

starting to pop up on the radar screens of other banks seeking takeover targets.

With its agreement Thursday to acquire

George Mason Bankshares

(GMBS)

in a stock swap valued at about $36.76 a share, or roughly $204 million, Parkersburg, W.Va.-based United solidifies its position in the affluent northern Virginia market, taking the No. 6 spot, up from No. 14. United already has the No. 3 position in stable West Virginia, but its Virginia position likely will attract more attention, analysts say.

"There is the possibility that they may be dressing themselves up for a possible buyout later on," says Joe Gladue, an analyst with Baltimore-based

Chapman Co.

, which hasn't participated in any recent United underwriting projects. "A northern Virginia presence is very desirable. If someone wants to build up market share in northern Virginia, United could be a way into the state."

After the transaction, expected to close in the first quarter, about $1.3 billion of United's $3.5 billion in assets will be in northern Virginia.

There even is speculation that George Mason Bankshares officials decided to sell to United because it offers a chance to double dip, or gain a premium both of its own shares in selling to United and then again on the United shares they receive in their deal if and when United sells out.

Bernard Clineburg, George Mason's president and chief executive, says officials at the bank did discuss the potential for United to one day be taken over, but the deal was driven by price and synergy. "Hey, it's always a possibility, but was it a motivating factor? Absolutely not," he says.

United on Thursday fell 1 15/16 to 43 9/16. On Friday, it slipped another 1/4 to 43 1/4.

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Virginia is in the midst of a bank takeover frenzy. Since June, at least three other acquisitions have been announced there, including Charlotte, N.C.-based

First Union's

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blockbuster agreement to buy

Signet Banking

(SBK)

. The deal will give First Union the state's No. 1 market share.

Winston-Salem, N.C.-based

Wachovia

(WB) - Get Weibo Corp. Report

has itself unveiled two deals in Virginia.

Chris Mutascio, an analyst with Baltimore-based

Legg Mason Wood Walker

, notes that Wachovia could buy United to further beef up its northern Virginia franchise. "It would really pump up their share" in certain markets, Mutascio says. Legg Mason hasn't participated in any recent United underwriting projects. In addition, Virginia's

Crestar Financial

(CF) - Get CF Industries Holdings, Inc. Report

could seek out United in a bid to bulk up to maintain its own independence.

But United's foundation remains West Virginia, where it trails just Charleston, W.Va.-based

One Valley Bancorp

(OV)

and Columbus, Ohio-based

Banc One

(ONE) - Get OneSmart International Education Group Ltd Report

, according to

SNL Securities

.

West Virginia represents a stable, if not wildly growing, market. "You don't get the wild swings" in the economy, says Marni Pont, an analyst with New York-based

Keefe Bruyette & Woods

, which hasn't participated in any recent United underwriting projects.

And United has shown that West Virginia provides sizable profits.

In the year's first half, United earned $20.2 million, or $1.33 a share, more than double the year earlier's $9.4 million, or 61 cents a share. United's return on equity, a key measure of profitability, was 15.5%, considered good but below many banks. Pont notes that the bank's high level of capital depresses its ROE. Its return on assets, another profitability measure, was 1.76%, well above the 1% market at which banks aim. And United's efficiency ratio, a measure of how much its spends to generate $1 in revenue, is 44.5%. Even some of the most well-regarded banks are above 50%. (A lower figure is better.)

With returns like that, United also could become attractive for a bank wanting to consolidate its position in West Virginia. State restrictions on deposit levels would bar Banc One or No. 4

Huntington Bancshares

(HBAN) - Get Huntington Bancshares Incorporated Report

, of Columbus, Ohio, from buying top-ranked One Valley, leaving United as a key vehicle for consolidation within West Virginia, says Pont.

Consolidation continues within the state, too. On Friday,

WesBanco

(WSBC) - Get WesBanco, Inc. Report

agreed to acquire United neighbor

Commercial Bancshares

(CWV)

, of Parkersburg, for about $130 million in stock.

United says it intends to remain independent. "This is not to say we would never sell out, but right now we're not finished" building the bank, says Don Landers, external accounting officer. "We're still intent on being independent."

Given that most banks make similar statements, investors simply need to add United's financial performance to its takeover potential to come up with an intriguing prospect.