ALLIED Irish Bank's £840 million agreed bid for Dauphin Deposit Corporation in Pennsylvania is the biggest ever acquisition by an Irish company. It will make AIB's First Maryland subsidiary the 45th biggest bank in the US.
The Dauphin acquisition - funded through a mixture of cash and AIB shares - eclipses the £683 million acquisition of Cellulose du Pin by Jefferson Smurfit and Bank of Ireland's £600 million bid for the Bristol & West Building Society in Britain.
Smurfit's £1.2 billion acquisition of Container Corporation of America in the late 1980s was in a 50-50 joint venture with Morgan Stanley.
The Dublin market was rife with rumours about the Dauphin acquisition from early morning yesterday. But AIB did not formally confirm the acquisition until late last night after its $43 per share bid had been agreed by the Dauphin board.
Earlier, Dauphin shares were suspended at $33.2 pending an announcement. Under the terms of the agreed bid, AIB is offering Dauphin shares - most of whom are private investors - $43 per share with a proviso that a maximum of 49 per cent of Dauphin shares will be converted into cash. AIB chief executive Tom Mulcahy said however that "a more desirable mix" of shares and cash would be 70-30. However he conceded that the final breakdown between cash and paper will be dictated by Dauphin shareholders.
If AIB does end up with a 70-30 mix between shares and cash, it would mean that AIB would issue 142 million of its shares to Dauphin shareholders in the form of its New York-listed ADR's. AIB, however, is seeking shareholder approval to buy back up to 50 million of its own shares if it ends up with too much capital because of a high level of acceptances for the share alternative.
AIB has done most of its calculations about the impact on its balance sheet on the basis of an anticipated 70-30 split between shares and cash. On that basis, Tier One capital of 8.1 per cent at the end of June 1996 would fall to 7.3 per cent after the acquisition and to 6.2 per cent after a buy-back of 50 million shares.
"Dauphin overlaps with and extends our existing market. We know the bank, we have competed with it and we have tracked it since the late 1980s. It has a terrific earnings record and is in the top 10 in the US for earnings growth in the past 10 years. It's a quality institution and will enhance what we already have. It's a terrific deal and will make FMB the 45th biggest bank in the US," said Mr Mulcahy.
He added that the acquisition fits in perfectly with AIB's strategy of being one of the top three banks in each of its markets - Baltimore, Washington DC and its suburbs, south-central Pennsylvania and northern Virginia. In south-central Pennsylvania, the combined FMB-Dauphin will be the biggest banking group.
First Maryland chairman Jerry Casey said that there is little prospect of a competing hostile bid for Dauphin bank from another bank and the deal includes a "poison pill" to deter any rival bid. "We have a lock-up deal with Dauphin for 19.9 per cent of shares at $33.2 (the price at which the shares were suspended). If anybody else comes in, Dauphin have to issue us with 19.9 per cent of their shares at that price."
Mr Mulcahy said the price being paid by AIB compares favourably with recent banking acquisitions in the US.
The acquisition will increase AIB's assets in the US from 26 per cent to 35 per cent of the total. The proportion of assets in Ireland will fall from 50 per cent to 44 per cent and in Britain will fall from 26 per cent to 24 per cent.
