Joseph Allbritton and his family, the biggest shareholders in scandal-tainted Riggs National ( RIGS), are laughing all the way to the bank -- the PNC ( PNC) bank, that is. Pittsburgh-based PNC Financial announced early Friday it's buying Riggs for about $779 million in stock and cash. The deal, which values Riggs shares at $24.25 a share, means Allbritton and his wife Barbara, who beneficially own about 8 million shares, stand to walk away with about $194 million. That's not a bad payday considering the tongue lashing Riggs banking officials received earlier in the week from a Senate committee investigating allegations of money laundering by the Washington institution. During a hearing Wednesday, senators scolded the bank for helping hide money for former Chilean dictator Augusto Pinochet. The committee's investigation found that from 1994 to 2002, Riggs helped set up phony offshore companies to hide Pinochet's assets from the prying eyes of bank regulators and foreign prosecutors seeking to freeze the ousted dictator's holdings. The committee revealed that Allbritton, who recently stepped down as chairman and chief executive of Riggs, even traveled to Chile more than a decade ago to personally solicit the former Chilean president's business. At one point during the hearing, an outraged Sen. Carl Levin (D., Mich.) asked several Riggs executives: "How do you basically live with yourself?'' Apparently, very well, after the PNC acquisition, which is expected to close early next year. The acquisition, however, wasn't sitting well with PNC shareholders. In early afternoon trading, shares of PNC were trading lower, down $1.26, or 2.6%, to $49.97 a share. In buying Riggs, PNC gets a 165-year-old institution with 50 branches in the Washington metropolitan area and $6 billion in assets. PNC officials say they expects the merger will start adding to the bank's earnings per share by 2007. But before then, the deal will be dilutive to earnings.
The sale of Riggs seemed all but inevitable after the bank paid a $25 million fine in May to settle a money-laundering investigation. The fine imposed by the Treasury Department's Office of the Comptroller of the Currency was one of the biggest ever slapped on a bank. Regulators alleged violations in Riggs' handling of bank accounts for several Saudi Arabian diplomats. On the surface, the deal may seem cheap, given that it represents only a 7% premium to Riggs' Thursday closing stock price of $22.67. But Riggs' stock has risen 37% this year and trades for 63 times this year's Thomson First Call earnings estimate and 52 times the 2005 forecast. Oppenheimer bank analyst Jennifer Thompson was less than enthusiastic about the deal in a research note. The analyst says the deal is risky because there could still be unresolved regulatory actions against Riggs. Thompson says the deal also may indicate that fundamentals in PNC's "core business were not as good as management has been indicating.'' The acquisition also should dampen investor enthusiasm about the possibility of PNC being a potential buyout candidate, she says.