First Union Will Buy CoreStates for $16.1 Billion

In the biggest banking deal in U.S. history, First Union Corp. on Tuesday agreed to buy CoreStates Financial Corp. for $16.1 billion worth of stock to form an East Coast banking powerhouse stretching from Florida to Connecticut.

The merger would create a financial giant with $204 billion in assets and 2,600 branches serving 16 million people in 12 states. The corporation would be the nation’s sixth-largest banking company and would have the largest share of retail deposits on the East Coast.

Charlotte, N.C.-based First Union said it expects to bring about 3,000 new jobs to CoreStates’ home base of Philadelphia, where it is the largest for-profit employer, with 20,000 workers. The region would be the headquarters for the new company’s operations in Connecticut, New York, Delaware, New Jersey and Pennsylvania. The jobs would “significantly offset the impact of merger-related job reductions,” the companies said in a statement.

But spokeswomen for both companies would not say Tuesday how many people would lose their jobs.

“We are particularly pleased that First Union is demonstrating an unwavering commitment to the growth and vitality of the region CoreStates serves,” said Terrence A. Larsen, CoreStates chairman and chief executive.

“Our combined organization will enable us to leverage our expertise, products and customer relationships in a powerful new way. Together, we will be unbeatable,” he said.

First Union has agreed to exchange 1.62 shares of its common stock for each share of CoreStates common stock. People familiar with the proposed deal said First Union would offer about $85 a share. CoreStates shares rose $6.50 to $79 on the New York Stock Exchange before trading was halted prior to the merger deal announcement.

The merger would eclipse the nation’s previous largest combination--NationsBank Corp.’s $14.6-billion proposed purchase of Barnett Banks. About $40.6 billion in commercial bank or bank holding company mergers have been announced in 1997, according to Securities Data Corp. of Newark, N.J.

The deal comes one month after CoreStates, long considered ripe for takeover, rejected an $18-billion offer from Pittsburgh-based Mellon Bank, saying it wanted to remain independent. But Larsen, facing shareholder complaints about sluggish earnings and a lack of direction, never ruled out a merger with a different partner.

The agreement is contingent on approval from shareholders and regulatory agencies.

Edward E. Crutchfield, chairman and chief executive of First Union, would retain his duties with the new company and Larsen would become vice chairman.

Analysts said the board saw more promise in First Union than in Mellon. “They’re looking at the long term for shareholders,” said Stephen Biggar, banking analyst at Standard & Poor’s. “They felt that First Union has much better prospects going forward.”

The new company would have the first-, second- or third-largest share of deposits in 21 of the 30 largest metropolitan areas on the East Coast.

“You’ve got to keep that pipeline of customers filled,” said Harold Schroeder, analyst at Keefe, Bruyette & Woods Inc. “You can continue to market very heavily in your own geographic area, but some would argue that it’s faster--certainly more expensive, but faster--to go out and acquire another bank.”

First Union last year acquired Newark, N.J.-based First Fidelity in a $5.4-billion takeover. The bank is also buying Signet in a deal, expected to close late this month, that led to the loss of about 1,700 Signet jobs and the closure of 97 branches in Virginia, Maryland and Washington, D.C.