RBC Centura in $1.6 billion deal for Alabama National

TORONTO (Reuters) - Royal Bank of Canada RY.TO subsidiary RBC Centura Banks Inc said on Thursday it has agreed to buy Alabama National BanCorporation ALAB.O in a $1.6 billion deal that will add to the Canadian bank's growing presence in the U.S. Southeast.

The Royal Bank tower in Toronto in an undated file photo. Royal Bank of Canada subsidiary RBC Centura Inc said on Thursday it has agreed to acquire Alabama National BanCorporation in a $1.6 billion deal that will add to the Canadian bank's presence in the U.S. Southeast. REUTERS/Royal Bank of Canada/Handout

Royal Bank, which expects the deal to close in early 2008, said Alabama National shareholders can choose to take $80 a share in cash, Royal Bank shares, or a combination of the two.

“If you look at our franchise, we’re in six states in the Southeast and this company was in three of those states,” RBC Centura’s chief executive and chairman, Scott Custer, said in an interview. “It significantly expands us and gives us management depth.”

Amid concerns about the U.S. housing market, Custer told Reuters that the credit quality of Alabama National’s real estate portfolio is “excellent,” and he said neither Centura nor Alabama National had any exposure to subprime mortgages.

“We’re very comfortable with the current state and the future prospects for the loan portfolio,” he said.

The offer price is a 50.6 percent premium to Alabama National’s closing share price of $53.12 on Wednesday. Alabama National’s stock has traded in a wide range of $49.31 to $74.15 over the past year.

According to Royal Bank, or RBC, the deal will add to earnings in 2009, but it did not detail the expected impact.

There will be some efficiencies through branch consolidations and head-office cost savings, Custer said.

RBC, Canada’s largest bank, has been gradually expanding its U.S. assets after it bought Raleigh, North Carolina-based Centura Banks in 2001 for $2.3 billion, and this marks its biggest U.S. acquisition since then.

Last summer, RBC Centura bought Atlanta, Georgia-based Flag Financial for $456 million, and earlier this year it acquired 39 Alabama branches from AmSouth Bancorp.

Since Canadian banks are not permitted to do domestic mergers, they have sought growth by expanding outside of Canada and by broadening their range of financial services at home.

Alabama National, based in Birmingham, has about 1,900 employees in 11 subsidiary banks and affiliated businesses in Alabama, Florida and Georgia, which will be rebranded in the 12 to 18 months after the deal is complete.

The subsidiaries offer banking services for individuals and businesses, commercial mortgage services, and brokerage services.

With the purchase, RBC Centura will nearly double its branch locations in Alabama and Florida, and will be a bigger player in Atlanta, Georgia.

RBC Centura will become the fourth-largest bank by market share in Alabama, with a 6.4 percent chunk of the market, after Regions Financial Corp RF.N, Wachovia Corp DWB.BA and Banco Bilbao Vizcaya Argentaria SA BBVA.MC, according to research firm SNL Financial.

The research firm noted that RBC Centura will also rise to eighth-largest in the Georgia market, and becomes the 16th largest bank by market share in Florida, where many retired Canadians spend their winters.

Shares of Alabama National soared 45 percent to close at $77.10 on Nasdaq, after rising as high as $77.80. Royal Bank shares slipped 4 Canadian cents to C$53.96 on the Toronto Stock Exchange.

RBC is offering 1.9 times Alabama National’s book value, and almost 20 times its 2007 forecast earnings, Dundee Securities analyst John Aiken said in a research note. While the stock-market premium may appear high, those valuations “are essentially in line with other recent acquisitions,” he said.

Al Savastano, an analyst at Fox-Pitt Kelton in New York, said that RBC is picking up additional branches in a high-growth area.

“If you’re going to pick anywhere in the U.S. to grow, it would be the Southeast, because it’s showing the most growth in terms of population,” he said.

($1=$1.05 Canadian)

Additional reporting by Dan Wilchins in New York and Frank Pingue in Toronto