PNC acquiring National City

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Investors reacted positively today to PNC Financial Services Group's $5.6 billion acquisition of troubled National City Corp., sending shares of the Pittsburgh bank up more than 5 percent.

The federally assisted transaction caps months of speculation that Cleveland-based National City's troubled loan portfolio would force it to find a stronger partner. It will make PNC the nation's fifth largest bank and put the U.S. Treasury on the list of PNC shareholders.

National City shareholders will receive $5.2 billion in PNC stock, or 0.04 PNC shares for each share they own. The terms value National City shares at $2.23 per share vs. yesterday's closing price of $2.75.

In addition, certain National City warrant holders will receive $384 million in cash.

PNC will issue $7.7 billion of preferred stock and warrants to the U.S. Treasury under the $700 billion financial assistance plan approved by Congress, allowing PNC to improve its capital position.

Acquiring National City will increase PNC's deposit base to $180 billion, making it the fifth largest U.S. bank by deposits, said Chairman and Chief Executive Officer James E. Rohr.

"In today's environment, deposits are really important," he told analysts during a conference call. "Balance sheet strength is vital and the key element of that is a large, stable deposit base."

Mr. Rohr said prior PNC chairmen broached a merger with National. Current discussions have been going on for about nine months and got serious Oct. 5, Mr. Rohr said.

"There was a competitive bid last night," he told analysts.

Because the merger will give PNC a dominant position in Western Pennsylvania, the bank may have to divest some branches here, Mr. Rohr said.

"We'll have a period of time to deal with that," he said.

Shortly after noon, PNC shares were trading at $59.46, up $2.58. National City shares were down 63 cents to $2.12.

National City President and Chief Executive Officer Peter E. Raskind will become vice chairman of PNC. One National City director will join the board of the combined company, which will be headquartered in Pittsburgh.

PNC said it expects to incur merger and integration costs of $2.3 billion but estimates the merger will generate annual savings of $1.2 billion. The transaction is expected to be completed by Dec. 31.



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