NEW YORK (Reuters) – PNC Financial Services Group Inc agreed to buy Ohio’s National City Corp in a $5.6 billion transaction that would save the ailing Cleveland-based bank.
PNC said the transaction values National City at $2.23 per share — a value roughly 19 percent below the Thursday closing price of $2.75. Each National City shareholder would receive 0.0392 PNC share for each National City share.
National City has been hit by home loans it held onto after selling its First Franklin Financial Corp subprime mortgage business to Merrill Lynch & Co Inc in 2006. Acquisitions of two Florida banks in 2006 and early 2007 also hurt National City.
In April, National City raised $7 billion of capital from private equity firm Corsair Capital and other investors, but that extra capital was not enough to save it. Regulators have been pressuring National City to sell itself for months.
Pittsburgh-based PNC would buy National City with about $5.2 billion of its shares, and $384 million of cash payable to some owners of warrants. PNC plans to sell $7.7 billion of preferred shares and warrants to the U.S. Treasury under the Troubled Assets Relief Program.
National City posted a $729 million quarterly loss earlier this week. In an interview on Tuesday, Chief Executive Peter Raskind told Reuters the economic environment remains tough. “It probably gets worse before it gets better,” he said.
PNC expects the transaction to close by the end of 2008. Citigroup, JPMorgan, and Sandler O’Neill advised PNC, while Goldman advised National City.
(Reporting by Dan Wilchins, editing by Gerald E. McCormick and Derek Caney)