Lower Takeover Price for Hibernia

Capital One will exchange cash and stock worth $30.49 a share.
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Capital One

(ONE) - Get Report

and New Orleans-based

Hibernia

(HIB)

have renegotiated terms of their merger agreement in the wake of Hurricane Katrina.

In the revised deal, which had been originally scheduled to close last week, Capital One will pay now $5 billion for Hibernia, or $350 million less than when the merger was first announced in March.

On the basis of Capital One's $80.50 share price at the close of trading on Tuesday, the Virginia-based credit card company will exchange stock and cash worth $30.49 for each share of Hibernia. The company originally had proposed paying $33 for the bank, which is the biggest lender in New Orleans.

Shares of Hibernia closed Tuesday at $31.40. In premarket trading, the stock was down $1.20, or $3.82, to $30.20.

In the days since Katrina left a trail of destruction across the Gulf Coast and turned New Orleans into a flooded ghost town, shares of Hibernia have been trading sharply lower on fears the deal with Capital One would be revised or called off.

In a joint press release, the companies said they "have concluded that completing the transaction under the new terms is in the best interest of their respective shareholders." The press release noted there is "considerable uncertainty in the aftermath of Katrina."

Many on Wall Street were predicting the deal terms would be revised given that almost three-quarters of Hibernia's New Orleans-area branches were at one time closed. With so many homes in greater New Orleans destroyed and flooded, it's not known when Hibernia's customers will be returning to the area, or whether they will have jobs to return to.

The bank, which has a total of 321 branches, recently reopend 47 that were shut by the storm; another 60 remain closed. Twenty-one of the closed branches, making up 5% of Hibernia's deposits, "appear to have sustained significant damage."

The revised merger terms must once again be approved by Hibernia shareholders. The companies expect the deal to close in the fourth quarter.